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BRIEFING PAPER

Number CBP 7485, 26 January 2016

Enterprise Bill [HL] 2015-16

By Doug Pyper, Marguerite Page, Mark Sandford, Chris Rhodes, Jeanne Delebarre, Timothy Edmonds & Elena Ares

Inside: 1. Introduction 2. The Small Business

Commissioner (Part 1) 3. Regulators (Part 2) 4. Extension of the Primary

Authority scheme (Part 3) 5. Apprenticeships (Part 4) 6. Late payment of insurance

claims (Part 5) 7. Non-domestic rating (Part 6) 8. Other enterprise-related

provisions (Part 7) 9. Public sector employment

(Part 8)

Number , 26 January 2016 2

Contents Summary 4

1. Introduction 5 1.1 Structure of the briefing paper 6

2. The Small Business Commissioner (Part 1) 7 2.1 Introduction 7 2.2 The Bill 8 2.3 Comment 10

3. Regulators (Part 2) 11 3.1 Introduction 11 3.2 Business Impact Target (clause 14) 11

Current law 11 The Bill 13 Debate in the Lords 13 Comment 14

3.3 Duty to report on regulators code and growth duty (clauses 15-16) 14 The Bill 15

3.4 Application of regulators' principles and code (clause 17) 16 3.5 Secondary legislation: duty to review (clause 18) 16

4. Extension of the Primary Authority scheme (Part 3) 17 4.1 Background 17 4.2 Extension of the Primary Authority provisions 18 4.3 The Government’s consultation and the Bill 18

Debate in the Lords 19 4.4 The Bill 20

Establishment of primary authorities 20 Role of primary authorities 21 Supporting and complementary regulators 22

5. Apprenticeships (Part 4) 24 5.1 Background 24 5.2 The Bill 25

Public sector apprenticeship targets (clause 20) 25 Only statutory apprenticeships to be described as apprenticeships (clause 21) 28

5.3 Comment 32 Comment on clause 20 32 Government consultation on clause 21 33 Other comment on clause 21 33

6. Late payment of insurance claims (Part 5) 34 6.3 Comment 38

7. Non-domestic rating (Part 6) 39 7.1 Disclosure of information 39

Contributing Authors: Marguerite Page (Part 1); Doug Pyper (Part 2, clauses 33-34 & Part 8); Mark Sandford (Part 3 & 6); Jeanne Delebarre (Part 4); Timothy Edmonds (Part 5 & clause 29); Chris Rhodes (clauses 27-28); Elena Ares (clauses 30-33)

Cover page image copyright: no attribution required

3 Enterprise Bill [HL] 2015-16

7.2 Business rates appeals 40 7.3 The Bill 42

8. Other enterprise-related provisions (Part 7) 44 8.1 Industrial Development (clauses 27 & 28) 44

Background 44 The Bill 45

8.2 UK Government Investments Limited (clause 29) 47 The Bill 48

8.3 UK Green Investment Bank (clauses 30-32) 48 8.4 Pubs code (clauses 33-34) 53

9. Public sector employment (Part 8) 55 9.1 Background 55 9.2 The Bill 57 9.3 Debate in the Lords 59 9.4 Comment 61

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Summary Part 1 of the Bill would create the role of the Small Business Commissioner whose functions would be to:

• give advice and information to small firms; and • assist small businesses in payment disputes with larger firms.

Part 2 would

• extend the ‘business impact target’ provision in Small Business, Enterprise and Employment Act 2015 to include the actions of statutory regulators;

• require regulators to report on their compliance with the ‘growth duty’ and duty to have regard to the Regulators Code;

• repeal the legislative barrier to subjecting Ofgem, Ofcom, the ORR and Ofwat to the Regulators’ Code and regulation principles; and

• modify the requirement for certain secondary legislation to be reviewed within five years of being made.

Part 3 would extend the Primary Authority scheme, which permits businesses operating across multiple local authority areas to maintain a regulatory relationship with a single ‘primary authority’, enabling a business or a group of companies to access assured regulatory advice from a single point. It would, among other things, widen access to the scheme and enable national regulators to support the primary authority by issuing advice and guidance.

Part 4 proposes a requirement for public sector bodies to contribute towards the target of creating three million apprenticeships and report on progress towards this. It would protect the term “apprenticeship”, making it an offence for a person offering training to describe the same as an apprenticeship if it is not a “statutory apprenticeship”.

Part 5 addresses the late payment of insurance claims. It would make it an implied term of every contract of insurance that, if the insured makes a claim under the contract, the insurer must pay sums due within a reasonable time. The Bill would restrict the ability of insurers to contract out of the implied term.

Part 6 would introduce two minor adjustments to business rates legislation. The first seeks to facilitate the sharing of information between the Valuation Office Agency and local authorities. The second arises from the Government’s review of business rates and would introduce a new appeals system: “check, challenge, appeal’.

Part 7 is titled “enterprise-related provisions”. It covers industrial development; UK Government Investments Limited; UK Green Investment Bank; and the Pubs Code, the last two of these resulting from Lords amendments.

Part 8 would enable regulations to restrict exit payments to employees of prescribed public sector authorities, or holders of prescribed offices, to a value of £95,000; an amount which may be varied by regulations or waived in special cases.

5 Enterprise Bill [HL] 2015-16

1. Introduction The Enterprise Bill [HL] 2015-16 (Bill 112 of 2015-16) was introduced to the House of Commons on 16 December 2015 and is scheduled to receive its Second Reading on 2 February 2016. It began its passage through Parliament in the House of Lords, and was debated there between 16 September 2015 and 15 December 2015.

Both the Bill and its Explanatory Notes are available on the Parliament website, where one can follow the Bill’s progress.

The Bill was announced during the Queen’s Speech on 27 May 2015, described as a Bill to: “reduce regulation on small businesses so they can create jobs”.1 In the background briefing notes to the Queen’s Speech, the Government set out the purposes and main benefits of the Bill:

The purpose of the Bill is to:

• Cement the UK’s position as the best place in Europe to start and grow a business, by cutting red tape and making it easier for small businesses to resolve disputes quickly and easily.

• Reward entrepreneurship, generate jobs and higher wages for all, and offer people opportunity at every stage of their lives.

The main benefits of the Bill would be:

• Progressing our commitment to cutting red tape and saving businesses at least £10 billion over this Parliament.

• Creating a Small Business Conciliation Service to help resolve business-to-business disputes, especially over late payment.

• Improving the business rates system ahead of the 2017 revaluation, including by modernising the appeals system.

• Other measures to help strengthen the UK’s competitiveness and back businesses to create jobs.2

The Bill is wide-ranging. It contains 35 substantive clauses and 4 Schedules, covering a range of areas, including:

• small business; • the duties of regulators; • extension of the primary authority scheme; • late payment of insurance claims; • business rates; • industrial development; • UK Government Investments Limited; • UK Green Investment Bank; • the Pubs Code; and • restrictions on exit payments to public sector employees.

Given this range, there is no single document or consultation that sets out the policy goals behind the measures in the Bill. However, the Department for Business, Innovation and Skills has published a

1 The Queen’s Speech 2015, 27 May 2015, p7 2 Ibid., p18

Number , 26 January 2016 6

collection of documents which acts as a useful central source of background material.3

The collection includes:

• a summary factsheet providing an overview of the Bill; • individual factsheets for each area covered in the Bill; • impact assessments for some of the provisions in the Bill, as well

as an overall impact assessment; and • a Delegated Powers Memorandum, explaining the reasons for

taking powers in the Bill to make delegated legislation.

1.1 Structure of the briefing paper This paper follows the structure of the Bill and deals individually with each of its clauses. The Schedules are considered alongside the associated clauses. Each section of the paper begins with introductory material summarising the background to the relevant clauses, then explains those clauses, and then provides an overview of reaction to them.

3 Enterprise Bill collection, Gov.uk

7 Enterprise Bill [HL] 2015-16

2. The Small Business Commissioner (Part 1)

2.1 Introduction Part 1 of the Bill would create the role of the Small Business Commissioner (SBC) whose functions would be to:

• give advice and information to small firms; and • assist small businesses in payment disputes with larger firms.

The issue of late payment of invoices, especially to small firms, is an ongoing one within the business community. As far back as 2001, research by the Federation of Small Businesses found that 73% of small businesses had experienced late payment in the previous 12 months with half having outstanding invoices of £5,000 and a fifth having £20,000 outstanding.4

The position has barely improved since. The Department for Business, Innovation and Skills’ (BIS) Impact Assessment of the Bill sets out research by the payments service Bacs undertaken in January 2015, which showed

The average small business was waiting for £31,901 of overdue payments.5

In their responses to a government consultation published in October 2015, over half the respondents:

cited some evidence of unfavourable treatment by larger companies. The majority of these responses provided evidence of late payment and many also provided evidence on wider payment issues. Several respondents specifically highlighted the use of extended payment terms as being particularly problematic.6

The Impact Assessment of the Enterprise Bill states that:

a 2013 Legal Services Board study into how small businesses resolve potential legal problems (including business to business problems such as trading and payments) single person businesses were shown to more often end up simply putting up with problems.7

Although as the Impact Assessment acknowledges, other avenues exist for dispute resolution for small firms, the SBC aims to specifically address the issues faced by small businesses over payment and the uneven ‘power dynamic’ between small and larger firms.8

The Government estimates that the cost to the public purse of setting up the SBC will be £1.1 million.9 The running costs will depend on the

4 Federation of Small Businesses, Late Payment, July 2011 5 BIS, Enterprise Bill Impact Assessments Summary, September 2015, p7 6 BIS, Small Business Commissioner : Summary of Response, October 2015, p5 7 BIS, Enterprise Bill Impact Assessments Summary, September 2015, p6 8 See: BIS, Small Business Commissioner Impact Assessment, September 2015 9 BIS, Enterprise Bill Impact Assessments Summary, September 2015

Number , 26 January 2016 8

demand for the service and the number of complaints. The direct costs to businesses are expected to be zero.10

More information about the problems of late payment and the attempts to improve it are set out in a separate Library briefing paper.

2.2 The Bill Clause 1 would create the post of Small Business Commissioner (SBC). Its main functions would be:

(a) to provide general advice and information to small businesses and

(b) to consider complaints from small businesses relating to payment matters in connection with the supply of goods and services to larger businesses, and make recommendations

Clause 2 defines ‘small business’, identifying the types of small businesses in relation to which the SBC would have functions. These are businesses with fewer than 50 employees, following the standard EU definition of a small firm.11 The clause would also create a power whereby the Secretary of State may add further provision about the meaning of ‘small business’.

Clause 3 would give the SBC the power to provide advice and information to small firms. This may include information about:

principles of the law of contract;

other sources of rights or obligations in relation to the supply of good or services;

dispute resolution complaint-handling bodies, ombudsmen, regulators or other persons (other than courts or tribunals) who, in connection with small businesses’ supply relationships with larger businesses, may be able—

(i) to resolve or facilitate the resolution of disputes, or

(ii) to give other advice or assistance to small businesses;

statutory rights to refer disputes in connection with such relationships for adjudication by a person other than a court or tribunal.

In relation to small businesses’ supply relationships with public authorities, the Commissioner may provide general advice or information about complaint-handling bodies, ombudsmen, regulators or public authorities (other than courts or tribunals) who may be able to resolve or facilitate the resolution of disputes, or to give other advice or assistance to small businesses; and about statutory rights to refer disputes in connection with such relationships for adjudication by a person other than a court or tribunal.

Clauses 4-8 would set up a SBC complaints scheme. Under this the SBC would consider and make decisions about complaints from small 10 BIS, Small Business Commissioner Impact Assessment, September 2015 11 EU Commission Recommendation, OJ L 124, 6 May 2013

9 Enterprise Bill [HL] 2015-16

businesses regarding payment issues with larger businesses, and may make recommendations as to how the relevant issues could be remedied/prevented in the future. Clause 4 defines the type of complaints that might be considered by the scheme. Decisions made by the SBC would not be legally binding (clause 5). The Commissioner may publish reports on individual complaints (clause 6). If a report is to be published, a complainant would not be identified in it unless they consented, and, if a respondent is to be identified, they would be given the chance to make representations before any report is published. Clause 7 would empower the Secretary of State to make regulations about the operation of the scheme, after a period of consultation (clause 7(9)). The regulations would be subject to the affirmative resolution procedure (clause 7(11)). Clause 8 prevents the SBC from disclosing to third parties information about a complaint that may identify the complainant, unless certain exemptions apply; for example, the SBC has obtained consent, or the disclosure is required for the purposes of legal proceedings.

Clauses 9-11 set out the reporting and reviewing process for the SBC. An annual report on the work of the SBC would be published and laid before Parliament (clause 9). After its initial two-to-three year period of operation, the Secretary of State would review the Commissioner’s performance triennially. This report would also be laid before Parliament (clause 10).

The Secretary of State would have the power to abolish the office of the SBC if it is determined that the role is either no longer necessary or that it is has not been effective enough to justify its continued existence (clause 11(1)). Clause 12 sets out procedural requirements for the exercise of the power in clause 11. The power may be exercised once the Secretary of State has consulted and laid before Parliament a draft regulation and explanatory document. Per clause 12(3), the explanatory document must:

(a) explain why the Secretary of State considers that one of the conditions in section 11(1) is met, and

(b) contain a summary of representations received in the consultation.

Clause 12 was added at Report Stage to ‘enhance the authority and permanence of the office 12. This followed a recommendation of the Delegated Powers and Regulatory Reform Committee, which stated

We … consider that it is inappropriate for the Bill to confer on the Secretary of State a Henry VIII power to abolish the Small Business Commissioner without any of the procedural restrictions (beyond the need for an affirmative resolution in each House) of the nature set out in the Public Bodies Act 2011, particularly that requiring consultation.13

The clause was agreed to with little debate.

12 HL Deb 25 November 2015 c743 13 Delegated Powers and Regulatory Reform Committee, Enterprise Bill [HL] European

Union Referendum Bill, 9th Report of Session 2015‒16, HL Paper 42, 22 October 2015, p4

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2.3 Comment The Government’s Small Business Commissioner Impact Assessment states that the creation of the office of the SBC will:

act as a strong disincentive to unfavourable payment practices, work with larger businesses to help them improve their practices, and build the confidence and capabilities of small businesses to assert themselves in contractual disputes and access information and advice so that they become able to negotiate more effectively.14

The Federation of Small Businesses welcomed the creation of the SBC and the tackling of late payment, stating that:

Recent FSB research found that only one in five (21%) of our members are confident the current Prompt Payment code will be enough to address the UK’s poor payment culture. In addition, the EU Late Payment Directive from March 2013 is simply being ignored by many large and multi-national companies to the detriment of small businesses and the sustainability of their supply chain.15

Debate in the Lords focused on the technical aspects of the role of the SBC; the principle of creating the SBC attracted broad support.

14 BIS, Small Business Commissioner Impact Assessment, September 2015 15 Federation of Small Businesses, Small Business Commissioner must have clout to

tackle late payment, 26 July 2015

11 Enterprise Bill [HL] 2015-16

3. Regulators (Part 2)

3.1 Introduction The provisions in Part 2 of the Bill continue the deregulatory policy approach adopted under the previous Coalition Government, building on measures introduced in the Small Business, Enterprise and Employment Act 2015 (SBEE) and Deregulation Act 2015. Part 2 comprises clauses 14 to 18, which would:

• extend the ‘business impact target’ provision in Small Business, Enterprise and Employment Act 2015 to include the actions of statutory regulators;

• require regulators to report on their compliance with the ‘growth duty’ and duty to have regard to the Regulators Code;

• repeal the legislative barrier to subjecting Ofgem, Ofcom, the ORR and Ofwat to the Regulators Code and regulation principles; and

• modify the requirement for certain secondary legislation to be reviewed within five years of being made.

Each of these is discussed in turn below.

3.2 Business Impact Target (clause 14) The SBEE requires the government of the day to set itself a business impact target (BIT) concerning the economic impact of regulations on business.16 The target’s scope is currently restricted to statutory provisions, or the exercise of statutory powers by Ministers. The Bill would extend the scope of the target to include the actions of statutory regulators.

Current law Sections 21-27 of the SBEE introduced the BIT. The key provision is section 21, which created a duty for the government of the day to publish, within 12 months of the commencement of a Parliament:

a target for the Government in respect of the economic impact on business activities of qualifying regulatory provisions which come into force or cease to be in force during the relevant period, and

an interim target applying at the end of the period of three years beginning with the commencement of the Parliament.

The target would apply to all qualifying regulatory provisions commencing or ceasing during the course of the Parliament.

Qualifying regulatory provisions are defined by the Secretary of State, but may only include statutory provisions. A “statutory provision” is defined in SBEE, section 22(6) to mean a provision of an Act, secondary legislation, or other provision which has effect by virtue of the exercise of a function conferred on a Minister by an Act.

The Government believes the potential scope of the target should be extended to include the actions of regulators. During Second Reading

16 Including the voluntary and community sector

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in the Lords, the Minister, Baroness Neville-Rolfe, explained the Government’s position:

The business impact target created in the Small Business, Enterprise and Employment Act 2015 requires government to measure and report on the economic impact to business of any regulatory changes. However, business consistently tells government that the actions of regulators are at least as important as the content of legislation. In a recent survey, nearly half of businesses said that preparing for regulatory inspections and dealing with inspectors is burdensome, and nearly three-quarters of scale-ups said that they would be able to grow faster if dealing with regulators was easier—a frightening figure. The Bill will extend the business impact target to cover the regulatory functions of not just Ministers but regulators. This means that regulators will be required to assess the economic impact of new or amended regulatory activity in the scope of the target, and to obtain independent verification of the economic impact of those measures.17

This Written Statement contains a list of the regulators that are currently being considered for inclusion within the BIT’s scope.18 It notes that the Government will consult on the coverage of the BIT in early 2016.

The impact assessment of the proposal indicates that the main monetised costs will be borne by regulators, with half these costs recouped through charges to those regulated:

The key monetised costs relate to the resources used by regulators to produce cost-benefit assessments of any changes they make and submit the assessments to the RPC for independent validation. These costs are estimated to be £1.3M with half of these costs recovered from business through fees and charges. Regulators may also incur some familiarisation costs, part of which will also be recovered from business. These costs however will only be generated by secondary legislation.19

The Regulatory Policy Committee rated the impact assessment as “fit for purpose” although made a number of criticisms. The key criticism was of the Government’s failure to explain why robust data could not be collected from regulators to estimate the number or the scale of assessments regulators would be expected to make.20 For example, the RPC analysis noted:

The approach does not take account of the existing work of regulators, e.g. through an assessment of their existing plans, work programmes and statutory duties. This means that the estimated number of changes brought into scope of the BIT is significantly uncertain, because it does not take account of evidence that regulators could have provided. The IA should also explain why publicly-available information on regulators’ planned

17 HL Deb 12 October 2015 cc13-14 18 Enterprise Bill: Extension of the Business Impact Target: Written statement -

HCWS272, 27 October 2015 19 Extension of the Business Impact Target, Impact Assessment, 1 August 2015, p1 20 RPC, Extension of the Business Impact Target, RPC reference number: RPC-3038(1)-

BIS, October 2015, p2

13 Enterprise Bill [HL] 2015-16

or historic changes was not used, even illustratively, to describe the likely volume and nature of submissions.21

The Bill Clause 14 would amend the scope of the BIT to include the exercise of a function conferred on a “relevant regulator” by or under an Act.22 A relevant regulator would be one specified in regulations by the Secretary of State, subject to the affirmative resolution procedure.23

Regulations which may come into force under the clause would affect the whole of the relevant period; i.e. the period between the last general election and the next, subject to transitional arrangements.24

Schedule 2 provides consequential amendments and details the operation of the duty on regulators to assess the economic impact of regulatory provisions. The duty requires regulators to publish information, in respect of each annual reporting period. The requirements are to list qualifying regulatory provisions; provide an assessment of the economic impact of qualifying regulatory provisions which has been verified by the Regulatory Policy Committee ; and summarise provisions which are out of scope (Schedule 4, para 2). Initially, the Bill would have required regulators to give this information to the Secretary of State, rather than publish it. However, that was amended during the Lords Report stage, following concern that a requirement to give documents directly to government may compromise the independence of the Equality and Human Rights Commission (see below).

The BIT provisions would not apply in relation to any regulatory provision within the legislative competence of the Scottish Parliament, National Assembly for Wales or the Northern Ireland Assembly.25

Debate in the Lords Grand Committee

Two proposed amendments, both withdrawn, provoked debate during Grand Committee: one on EU regulation and one on the independence of the Equality and Human Rights Commission.

Their Lordships debated an amendment that would have extended the scope of the BIT to include directly applicable EU regulation, i.e. EU regulation that does not rely on being transposed in domestic law (the primary or secondary legislation that transposes EU law will count toward the BIT). In moving the amendment, Lord Stevenson of Balmacara said that the EU is the source of a substantial volume of regulation and if, as is currently the case, EU measures are not within scope of the BIT, it is difficult to assess the impact of the total stock of regulation and whether or not government is adding to it. For the Government, Baroness Neville-Rolfe argued that the reason EU measures are outside the scope of the BIT is “the target that we have

21 Ibid. 22 Clause 14(2) 23 Clause 14(3) 24 Clause 14(5)-(8) 25 Small Business, Enterprise and Employment Act 2015, section 22(7)

Number , 26 January 2016 14

chosen to set and have put in legislation should reflect what we can control”.26 A similar amendment was moved on Report by Lord Mendelsohn and again withdrawn.27

A number of their Lordships spoke to support an amendment that would have excluded the Equality and Human Rights Commission (EHRC) from the Bill’s regulatory target and reporting requirements. The Government argued and that the Bill would not interfere with the EHRC’s work - it would merely require it to report on the impact of this on business - as such, it would not fetter its independence nor jeopardise its international accreditation. 28

Amendment during Report stage

The issue of the EHRC’s independence was revisited on Report, where the Government moved a group of amendments. The Bill as introduced would have required regulators in scope of the BIT to give documents “to the Secretary of State” after the reporting period. The amendments changed this to a requirement to publish the documents. The Minister explained the thinking behind the amendments:

They will require regulators to publish required documents relating to the regulatory activities that they have undertaken in an annual reporting period, rather than providing them to the Secretary of State. Cutting this direct reporting link to the Government will both mitigate any risk to the EHRC’s “A” status, and offer some comfort to other regulators that their independence is not at risk either.29

Comment There has been no substantial public or media comment on this section of the Bill. As noted above, the principal area of interest in the Lords was the application of the target to the EHRC. The EHRC has itself argued that it should not be subject to the target.30

3.3 Duty to report on regulators code and growth duty (clauses 15-16)

Clauses 15 and 16 would require regulators to prepare and publish performance reports, setting out their assessment of how each of the following has affected the way they exercise their functions:

• the requirement to have regard to the Regulators’ Code; and • the growth duty in the Deregulation Act 2015.

The Regulators’ Code (April 2014) is a code issued by a Minister under section 22 of the Legislative and Regulatory Reform Act 2006. Regulators whose functions are specified by order under the Act must have regard to the Code when exercising certain functions.

26 HL Deb 28 October 2015 c233GC 27 HL Deb 25 November 2015 c753 28 Op cit., c238GC 29 HL Deb 25 November 2015 c760 30 EHRC, Enterprise Bill, Committee Stage briefing

15 Enterprise Bill [HL] 2015-16

The growth duty was enacted under section 108 of the Deregulation Act 2015 but is yet to be implemented. Under that section, regulators must when exercising certain functions “have regard to the desirability of promoting economic growth”.31 The growth duty will not apply to the EHRC. The Government has indicated that it will consult about the scope of the growth duty during 2016.32

The Bill Clauses 15 and 16 are broadly the same, although they apply to different duties (hereafter ‘the Duties’):

• clause 15 applies to the duty to have regard to the Regulators’ Code;

• clause 16 applies to the growth duty .

Clause 15 would introduce a new section 23A into the Legislative and Regulatory Reform Act 2006. Clause 16 would introduce a new section 110 into the Deregulation Act 2015.

The clauses would require relevant regulators to publish performance reports in respect of each reporting period. A performance report is one concerned with the effect of performance of the Duties on the way the relevant regulator exercised its relevant functions in the reporting period. The performance reports must include the relevant regulator’s assessment of:

• the views of businesses it regulates, about the effect of compliance with the Duties; and

• the impact on businesses of that effect.

In publishing the performance report, the regulator must follow Ministerial guidance (unless it considers there is good reason not to do so), which may include guidance as to:

• information or other matters to be included in a performance report;

• information to be obtained for the purposes of a performance report; or

• the means by which information should be obtained for the purposes of a performance report.

A Minister may from time to time request information about compliance with the Duties. In relation to the duty to have regard to the Regulators’ Code, the Minister may not request this information from the EHRC. As noted, the growth duty does not apply to the EHRC, so there is no question of the Minister requesting the information from them. During Lords debate on the growth duty the Minister assured the Grand Committee that the growth duty will not apply to the EHRC.33

31 Deregulation Act 2015, section 108(1) 32 HL Deb 12 October 2015 c13 33 Ibid., c238GC

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3.4 Application of regulators' principles and code (clause 17)

Clause 17 would repeal current provisions preventing certain regulators from being subject to (a) the better regulation principles set out in the Legislative and Regulatory Reform Act 2006; and (b) the Regulators’ Code. The Explanatory Notes set out the effect of this:

These provisions repeal subsection (5) of section 24 of Legislative and Regulatory Reform Act 2006 (LRRA). Section 24(5) prevents the regulatory functions of Ofgem, Ofcom, the ORR and Ofwat from being subject to the duty to have regard to the better regulation principles in section 21 LRRA and the code (currently the Regulators’ Code) under section 22 LRRA. This repeal will not of itself subject these regulators to this duty (this can only be done following consultation and via secondary legislation) but it removes a legislative barrier to doing so.34

The provision was agreed to in the Lords without debate.35

3.5 Secondary legislation: duty to review (clause 18)

The Small Business, Enterprise and Employment Act 2015 created a requirement for certain secondary legislation to be reviewed within five years of being made. The duty would apply to ‘regulatory provisions’ (i.e. those that might impact on business). Section 30(3) of the 2015 Act provides that, where the provision implements an EU obligation, the review

must have regard to how the obligation is implemented in the other Member States

Clause 18 would amend this requirement so that it would read:

must so far as reasonable have regard to how the obligation is implemented in other Member States

The clause was agreed to in the Lords without debate.36

34 Enterprise Bill Explanatory Notes, p6, para 17 35 HL Deb 28 October 2015 cGC251 36 Ibid.

17 Enterprise Bill [HL] 2015-16

4. Extension of the Primary Authority scheme (Part 3)

4.1 Background The Primary Authority scheme permits businesses operating across multiple local authority areas to maintain a regulatory relationship with a single ‘primary authority’, allowing a business or a group of companies to access assured regulatory advice from a single point. The scheme is intended to simplify regulation by preventing different local authorities from coming to differing interpretations of regulatory requirements. It also enables primary authorities to stay enforcement actions by other regulators against businesses which they regulate, if the business can show that it is acting according to a primary authority’s advice.

The scheme – now known simply as ‘Primary Authority’ – was introduced by the Regulatory Enforcement and Sanctions Act 2008 and revised by the Enterprise and Regulatory Reform Act 2013.37 An account of the scheme is available from the Government document Primary authority: nurturing partnerships for growth. The Government has also published statutory guidance on the operation of the scheme.38

The scheme was initially administered by the Local Better Regulation Office (LBRO), an independent public body set up by the Regulatory Enforcement and Sanctions Act 2008. Following the review of public bodies conducted by the Coalition Government in 2010, the LBRO was absorbed into the Department for Business, Innovation and Skills as a self-contained unit as of 1 April 2012, and renamed the Better Regulation Delivery Office (BRDO).39

The Primary Authority scheme extends to the whole of the UK. In Scotland it only covers regulatory matters that are reserved, and in Northern Ireland it only covers matters that are not transferred. The Regulatory Reform (Scotland) Act 2014 created a power for the Scottish Government to create a primary authority-style scheme in Scotland, but this has not yet been done: a Scottish Government consultation closed in June 2015. A Memorandum of Understanding governs the representation of the views of the National Assembly for Wales regarding regulation by primary authorities.

Under current arrangements, local authorities can be nominated as primary authorities in respect of a fixed set of 23 categories (see the

37 A separate ‘Home Authority’ scheme preceded, and continues to exist alongside, the

Primary Authority scheme. Home Authority allows businesses operating in multiple areas to access regulatory advice, relating to their entire operation, from their ‘home authority’ i.e. where their head office is located. This is not a statutory scheme and is not offered by all local authorities, but it is free to businesses.

38 See also the Regulators’ Code, published by the Government in April 2014. 39 See BIS, Delivering Better Regulation: Government Response to the Consultation on

the Future of the Local Better Regulation Office, November 2011. The change was effected via the Local Better Regulation Office (Dissolution and Transfer of Functions etc.) Order 2012 (SI 2012/246).

Number , 26 January 2016 18

primary authority guidance). The Secretary of State is responsible for approving relationships between individual businesses and primary authorities. A full list of businesses covered and their respective primary authorities is available on a public register and is regularly updated.

The 2013 Act permits members of a trade association, or a group of businesses such as a retail franchise, to form a partnership with a relevant public body, so that all of the partnership members are subject to a single regulatory regime which must be followed by statutory regulators. The Act allows a primary authority relationship to be negotiated by the trade association, saving time and effort for the individual businesses. It uses the term ‘co-ordinated partnership’ to describe such an arrangement. Both the partnership body and the individual businesses must apply separately to be part of the co-ordinated partnership.

Local authorities are required to notify the primary authority in advance of any proposed enforcement action in matters covered by the primary authority. Businesses can also object to their primary authority when their local authority proposes enforcement action, for a limited period. The primary authority can then suspend enforcement action if it believes that the action is inconsistent with previously provided advice.

Full details of primary authority arrangements, businesses covered, and statutory guidance can be found at https://primaryauthorityregister.info.

4.2 Extension of the Primary Authority provisions

Following the passage of the 2008 Act, the Co-ordination of Regulatory Enforcement (Enforcement Action) Order 2009 (SI 2009/665) set out the types of enforcement action which can be covered by primary authority arrangements. This Order was amended by the Co-ordination of Regulatory Enforcement (Enforcement Action) (Amendment) Order 2013 (SI 2013/2286), which extended the 2008 Act’s provisions on primary authorities to cover regulation of age restrictions on gambling, sunbed tanning, plastic bags in Wales, and the Housing Health and Safety Rating System. Further amendments, including various enforcement powers relating to fire safety, were added by the Co-ordination of Regulatory Enforcement (Enforcement Action) (Amendment) Order 2014 (SI 2014/573).

4.3 The Government’s consultation and the Bill

The Secretary of State for BIS, Sajid Javid MP, referred in his first speech in post to the Government’s aim of extending the Primary Authority scheme. In September 2015 the Government published a consultation paper, Extending and Simplifying Primary Authority: Keeping the UK Competitive. The consultation paper suggested that more businesses would benefit from participating in the scheme, and made a number of proposals to extend it. It includes an impact assessment with various estimates of the potential benefits to business and the costs to

19 Enterprise Bill [HL] 2015-16

prospective primary authorities of setting up more primary authority partnerships.

The consultation paper proposes the following changes:

• To permit a business to create a relationship with a primary authority when it only operates in one local authority area. Currently a business must operate across two or more areas to be eligible. This would allow businesses to choose to receive compliance advice from a primary authority that has regulatory expertise in the business’s particular sector. The Government anticipates that most such businesses would wish to partner with their own local authority;40

• To allow ‘co-ordinated partnerships’ – e.g. trade associations – to develop a primary authority agreement, and then to maintain a list of members, all of whom would be automatically covered by the agreement. The individual members would then not be required (as they are under the 2013 Act) to join the primary authority agreement in their own right;

• To enable national regulatory bodies to provide a supporting role to primary authorities. The national regulatory bodies in question would be specified via regulations. This would also be intended to improve co-ordination generally between different regulatory regimes. The consultation suggests the Health and Safety Executive, the Food Standards Agency and the Gambling Commission as possible candidates.

• Regulators that provided advice or guidance in the capacity of a primary authority would be able to recover their costs from businesses, as local authorities currently can when acting as primary authorities. Guidance on how to approach this, within the Treasury document Managing Public Money, is to be updated;

• These national regulatory bodies would be required to act consistently with regulatory advice that they had supported a primary authority in creating.

The Bill would give effect to these changes, by substituting a series of new sections contained in clause 19 for Part 2 (sections 22-35) of the Regulatory Enforcement and Sanctions Act 2008. A number of the changes noted above are not explicit in the Bill’s text, but they will be implemented by virtue of the 2008 legislation being replaced.

Debate in the Lords At Second Reading in the House of Lords, Baroness Neville-Rolfe introduced the section of the Bill dealing with the primary authority scheme:

Primary Authority allows businesses to form partnerships with a local authority, giving them access to robust, reliable advice on a whole array of regulation to help them run their day-to-day businesses. Other authorities must then take this into account when carrying out inspections or addressing non-compliance, even if the firm trades across several local authority areas. Since its introduction, Primary Authority has doubled in size every year. There are now close to 8,000 Primary Authority partnerships, 85% of which are with small and medium-sized enterprises. In

40 BIS, Extending and Simplifying Primary Authority: Keeping the UK Competitive,

2015, p.6

Number , 26 January 2016 20

effect, the Bill amends and consolidates the existing legislation that underpins the scheme for ease of comprehension by enforcers and businesses, as can be seen in the Bill as published. It will give businesses the opportunity to receive tailored, assured advice from a primary authority in relation to key regulations affecting them. Pre-start-up enterprises, those regulated by only one local authority, and more groups of businesses—such as members of franchises or trade associations—will now be able to benefit from the scheme.41

The provisions were generally welcomed in the House. For Labour, Lord Stevenson of Balmacara said:

In Committee, we will also probe whether it is possible for councils to charge for the work that they do on this scheme. They should be able to charge reasonable fees that would be negotiated and agreed by the primary authority, rather than being limited to charging on a cost recovery basis. At a time when local authorities are being very badly hurt by cuts, this is something where value for money might prove valuable to them.42

Clause 19 was agreed without debate at both Committee and Report stage.43

4.4 The Bill Clause 19(1) would replace Part 2, clauses 22-35, of the Regulatory Enforcement and Sanctions Act 2008. The following analysis refers entirely to the new sections to be introduced by Clause 19. Clause 19(2) introduces Schedule 3, which contains a new Schedule 4A to replace Schedule 4 to the 2008 Act.

New sections 22A, 22B and 22C provide definitions for the new Part.

Establishment of primary authorities New section 23A would permit the Secretary of State to nominate a local authority or a ‘qualifying regulator’ to act as a primary authority. Currently only local authorities may be nominated. It also provides for a primary authority to regulate a group of regulated bodies, as in the 2013 Act. This type of primary authority is referred to as a ‘co-ordinated primary authority’ in the Bill, as opposed to a ‘direct primary authority’, which has a relationship with individual businesses. The new section uses the term ‘partnership functions’ to denote regulatory responsibilities.

New section 23B would provide that the Secretary of State can only specify that a primary authority should act as such with regard to a particular business, or body, if both the primary authority and the business agree. New section 23B (4) provides that a public list of ‘nominations’ must be maintained.

New sections 23C and 23D specify that a ‘regulated group’ must have a co-ordinator, and that the co-ordinator must maintain and make publicly available the group’s membership list. The requirement in the

41 HLDeb 12 Oct 2015 c11 42 HLDeb 12 Oct 2015, c80 43 See HLDeb 28 Oct 2015 cGC252; HLDeb 25 Nov 2015 c764

21 Enterprise Bill [HL] 2015-16

2013 Act, for group members to join the primary authority agreement individually, is absent.

Role of primary authorities New section 24A would provide for primary authorities to give ‘advice and guidance’ to ‘regulated persons’ – i.e. businesses – and also to advise other regulators on how they should regulate the businesses in question. The intention is to ensure that relevant regulators follow the lead given by the primary authority, and that the businesses can rely upon the primary authority’s advice in all their interactions with other regulators.

New sections 25A, 25B and 25C set out how enforcement action must be handled with regard to a business or group that has a relationship with a primary authority. Section 25B would require a primary authority to inform the business of their intention to take enforcement action. Section 25B(2) would permit an appeal against the enforcement action to the Secretary of State if the action was “inconsistent with advice or guidance previously given by the primary authority” (see Schedule 3 paragraph 1(3) (a)). The Secretary of State would then be able to direct the primary authority not to take the enforcement action, if it was inconsistent with previously provided advice or guidance.

New section 25C(2) and (9) would provide that, where an authority other than the primary authority proposes to take enforcement action, they must notify the primary authority and then wait for five days before taking the action. The primary authority can then direct the other authority not to take enforcement action if it is inconsistent with previous advice or guidance. If it does not do so, the business has five further working days in which to appeal to the Secretary of State to stay the enforcement decision, on the grounds that it is inconsistent with previous advice or guidance.44

Schedule 3 paragraph 2 would permit an enforcing authority to appeal to the Secretary of State against a primary authority direction not to take an enforcement action; and schedule 3 paragraph 3 would permit a business to appeal if a primary authority did not stay an enforcement action. The primary authority may also refer the decision on whether an enforcement action should be taken to the Secretary of State (schedule 3 paragraph 4).

The Secretary of State must make a decision on any question referred to them under this schedule within ten working days (paragraph 5). S/he must consult any ‘relevant regulator’, except for one involved in the question that has been referred, and may consult other people (paragraph 6).

New section 26A would permit the creation of ‘inspection plans’ by the primary authority. Inspections by the primary authority must ‘have regard’ to the inspection plan and other regulators may not work outside the terms of the plan without written permission from the 44 If the primary authority notifies the other authority that it will not be preventing

enforcement, the second five-day period runs from the day on which the other authority receives this notification: see new section 25C (9) (b) (ii).

Number , 26 January 2016 22

primary authority (new section 26B). New section 26C allows inspection plans to be revoked.

New section 27A would permit all primary authorities to charge regulated persons amounts sufficient to recover the costs of regulation.

Supporting and complementary regulators New section 28A introduces the concept of ‘supporting regulators’. Supporting regulators are permitted to contribute to primary authority advice and guidance: this would allow, for instance, a national regulator to assist a primary authority in providing advice and guidance to an individual business. New section 28A(3) requires supporting regulators to act in accordance with advice or guidance provided by a primary authority, and to follow any inspection plan that has been produced: but this must only be done “so far as it is possible for the supporting regulator to do so in accordance with its other functions” (new section 28A(5)).

The new section permits the Secretary of State to make regulations specifying which bodies are ‘supporting regulators’ and which of their regulatory functions the new section applies to (new section 28A(1) and (10)). Supporting regulators may charge fees to the regulated person or group for the provision of advice.

New section 28B introduces the concept of ‘complementary regulators’. These too are to be defined in regulations made by the Secretary of State. These will be bodies that do not have a direct regulatory function but may in the future be able to take enforcement action against businesses in matters related to primary authority responsibilities. New sub-sections 28B(2) and (5) provide that complementary regulators too must act in accordance with primary authority advice, guidance and inspection plans. As with supporting regulators, regulations must prescribe which regulatory functions these requirements apply to.

Regulations under these two new clauses cannot apply to devolved matters in Scotland and Northern Ireland, and need the consent of the Welsh Ministers to apply to devolved matters in Wales.

New sections 29A to 29D make provision as to what would happen if a business facing enforcement action was using guidance or advice produced by different primary authorities. These sections would apply if, for instance, a business received different advice from a direct primary authority and its trade association acting in the capacity of a primary authority. It is anticipated that these new sections will only come into play on rare occasions.

New section 29A would provide that, where a primary authority proposed to take action that was not consistent with advice provided by another primary authority, they would be obliged to notify the other primary authority and await its approval.

New section 29B would provide that, where there is more than one primary authority for a given regulated business, only one need be contacted with regard to enforcement action. It would then be up to

23 Enterprise Bill [HL] 2015-16

this primary authority to find out whether another nominated primary authority had given advice on which the business had relied. If alternative advice was identified, then the decision as to whether to stay enforcement action must be referred to the other primary authority that provided it.

New section 29D provides that, where inspection plans overlap, one made by a direct primary authority trumps one made by a co-ordinated primary authority (i.e. one working with a trade association or similar body).

New section 30 provides general powers for the Secretary of State to issue guidance to regulators or co-ordinating bodies regarding the operation of the scheme. New section 31 provides interpretations for the purposes of the Part.

Number , 26 January 2016 24

5. Apprenticeships (Part 4)

5.1 Background During the 2010-15 parliament, there were over 2.3 million new apprenticeship starts.45 In their 2015 manifesto, the Conservatives pledged to create three million new apprenticeships by 2020.46 Both this policy and a duty for the Secretary of State “to report annually on job creation and apprenticeships” were confirmed in the 2015 Queen’s Speech.47

Provisions for this policy to create three million apprenticeship are split across the Welfare Reform and Work Bill and the Enterprise Bill. The Welfare Reform and Work Bill sets out a duty that Government reports annually on progress towards the 3 million apprenticeships target.

The Enterprise Bill includes an obligation for public sector bodies to contribute towards this target and to report on their progress. It would also protect the term “apprenticeship” by making it an offence for a course or training to be offered as an apprenticeship if it is not a statutory apprenticeship.

45 Department for Business, Innovation and Skills, ‘More people than ever doing an

apprenticeship’, 14 October 2015 46 “To secure your first job, we will create 3 million new apprenticeships”, The

Conservative Party Manifesto 2015, p.3 47 Queen’s Speech 2015

Apprenticeship starts in England, thousands

* Data for 2014/15 are provisional.Notes

Data are for academic years (August 1st to July 31st)

Source: BIS FE data library: apprenticeships and HC Deb 14 Feb 2011 c560-1W (PQ38062)

Data prior to 2002/03 are not directly comparable to later years as substantial changes were made: the Modern Apprenticeship system was abandonned and the upper 25 age limit was removed .Data from 2011/12 onwards are not directly comparable to earlier years. Small technical changes have been made leading to a reduction in overall learner numbers of approximately 2%.

Figures are rounded to the nearest hundred. Figures prior to 2002/03 are rounded to the nearest thousand.

100

200

300

400

500

600

25 Enterprise Bill [HL] 2015-16

Skills are a devolved policy area. The apprenticeship provisions of the Enterprise Bill apply only to England.48

5.2 The Bill Part 4 of the bill contains two clauses: clauses 20 and 21. Clause 20 deals with public sector apprenticeship targets. Clause 21 defines ‘statutory apprenticeships’.

Public sector apprenticeship targets (clause 20) Background

Clause 20 would insert a new section into the Apprenticeships, Skills, Children and Learning Act 2009 (as amended by the Deregulation Act 2015) giving the Secretary of State powers to set the number of apprentices taken on by prescribed public bodies. These powers are set out in the first subsection to clause 20, which would introduce new sections A9 and A10 to the 2009 Act.

Public sector apprenticeship targets (clause 20, subsection 1, new section A9)

A9 contains seven subsections which define apprenticeship targets and public bodies.

A9(1) would give the Secretary of State the power to set apprenticeship targets for a public body or part of a public body through secondary legislation (regulations).49

A9(2) defines ‘apprenticeship targets’ as targets for the number of people who work for a public body under an apprenticeship agreement. Subsection 7 defines such ‘apprenticeship agreements’ as two things: an approved English or Welsh apprenticeship as defined in the Deregulation Act 2015 50 and an apprenticeship agreement as defined in the Apprenticeships, Skills, Children and Learning Act 2009.51

A9(3)-(6) provide a technical basis for the public bodies’ apprenticeship targets, further details of which will be provided in regulations. The kind of bodies to which these targets may apply include any public authority or body, including central Government departments, non-departmental public bodies and other bodies exercising public functions.

Further provisions about apprenticeship targets (clause 20(1), inserting new section A10)

A10 contains 8 sub-sections which require that prescribed bodies must report on their progress towards meeting the apprenticeship target within six months after the end of each reporting period.52 They also set

48 Part 4 of the bill, on apprenticeships, will form part of the law of England and Wales

but will apply to England. (Enterprise Bill [HL], Explanatory Notes, p.11) 49 Under the affirmative procedure the first time such a regulation is made and under

the negative procedure after that. 50 Deregulation Act 2015, Schedule 1, Part 1, Chapter A1, clause 1, A11, subsection 3 51 Apprenticeships, Skills, Children and Learning Act 2009, Chapter 1, clause 32,

subsection 2 52 Reporting period differ from target period. Reporting periods are defined in section

of the Welfare Reform and Work Bill and last between 8 and 13 months. The target period is the 2015-2020 period for 3 million apprenticeships starts.

Number , 26 January 2016 26

out the content of these reports and give the Secretary of State powers to request information about actions taken by public bodies to meet the target, or explanations for failure to do so.

Comments on clause 20 during Second Reading in the Lords

Controversy during the Second Reading in the House of Lords arose because the Enterprise Bill imposes apprenticeship targets on public sector bodies but not on the private sector. As put by Lord Mendelsohn (Labour):

If it is good enough for the public sector to have such targets, it might be under the Minister’s consideration for the private sector to have similar targets imposed in due course.53

Lord Mendelsohn also criticised the Government for “cutting budgets to local authorities”, thus hindering their capacity to achieve these targets.54

Lord Stoneham (Liberal Democrat) criticised the Enterprise Bill’s agenda for being “very limited”.55 He also argued that

The real problem … is getting the small business sector to take on new apprenticeships without weighing it down with the bureaucracy of government incentive schemes and costs. We would do better to oversee government resources going into this and, in particular, into adult education which can play such a big role in supporting local businesses in their area. 56

Another point raised by Lord Mendelsohn regarding public sector apprenticeship targets was that of regional disparities and local government capacity to achieve the targets:

There are regional disparities and there is no mention of the fact that there are areas, such as the north-east, where the achievement in apprentices is much more disappointing than in other areas of the country. As providing resources is the key, can the Minister confirm that, in line with the devolution of local government, local authorities are not going to be included in the public sector targets at this stage? 57

Lord Baker (Conservative) questioned whether the targets would address the UK skills gap in terms of high-quality apprenticeships and technical education among young people aged 14. He stressed that spending on apprenticeships, despite being

an entirely appropriate cause for the Government to be committed to … must focus on the high quality of apprenticeships, because that is where we need it most.58

Regarding the impact on the NHS, Baroness Donaghy (Labour) commented:

53 HL Deb 2 October 2015, c20 54 HL Deb 2 October 2015, c20 55 HL Deb 2 October 2015, c21 56 HL Deb 2 October 2015, c21 57 HL Deb 2 October 2015, c20 58 HL Deb 2 October 2015, c27

27 Enterprise Bill [HL] 2015-16

If the National Health Service is forced to take on more apprentices, where there is insufficient staffing capacity to provide supervision and mentoring, it could be very risky.59

Baroness Warwick (Labour), as chair of the National Housing Federation, expressed concerns about the impact of clause 20 on housing associations:

I welcome the Government’s commitment to create 3 million apprenticeships by 2020, although I, too, acknowledge that that is a very challenging target. Housing associations want to play their part in creating those apprenticeships, but I am anxious that the Enterprise Bill will create obstacles and not opportunities for them to do that.60

More specifically, she feared that should housing associations be included in the ‘public bodies’ prescribed to achieve apprenticeship targets:

there is a risk that innovative approaches to apprenticeships, skills development and wider employment support may be stifled by the need to meet formal targets on apprenticeship numbers. 61

The Committee and Report stages in the Lords

The debate in Grand Committee dealt with similar themes as those debated during the Second Reading – the lack of private sector targets, the impact on local authorities, charities and housing associations – and new points of concern:

• Amendment 49DA was moved by Lord Stevenson (Labour) and aimed to address the “real problems”62 that the apprenticeship targets may cause to local government bodies and agencies, for example due to their current readiness to take on apprentices in sufficient numbers. The amendment was withdrawn after Baroness Neville-Rolfe stated that the Government were consulting with the Department for Communities and Local Government about targets for local authorities.

• Amendment 49E, moved by Baroness Sharp (Liberal Democrat), proposed that public bodies be allowed to set apprenticeship targets for their sub-contractors and count them as theirs.63 The amendment was withdrawn after Baroness Neville-Rolfe stated that by doing so “the benefit that apprentices could bring to the public sector would be lost.”64

• Amendment 49F, moved by Baroness Sharp, was intended to reserve a proportion of the apprenticeships created by the targets for young people who are care leavers, disabled or have learning difficulties. The amendment was withdrawn after Baroness Neville-Rolfe stated that “the Government do not feel that it is appropriate…. We are trying to keep our targets simple.”65

• Amendment 49G was moved by Lord Stevenson and would set an obligation for any public or private body employing apprentices to

59 HL Deb 2 October 2015, c30 60 HL Deb 2 October 2015, c45 61 HL Deb 2 October 2015, c45 62 HL Deb 2 November 2015, c254GC 63 HL Deb 2 November 2015, c264GC 64 HL Deb 2 November 2015, c267GC 65 HL Deb 2 November 2015, c272GC

Number , 26 January 2016 28

pay them the living wage. The amendments were withdrawn after Baroness Neville-Rolfe argued that the Government were already committed “to improving living standards, particularly for the low paid”66 as showed by the increase to the national minimum wage in October 2015.

• Amendment 49J, moved by Lord Stevenson, would have required that the Secretary of State report on the impact of the apprenticeship levy and apprenticeship targets on the quantity and quality of apprenticeship schemes offered by public bodies. The amendment was withdrawn after Baroness Neville-Rolfe replied that it would be premature to impose a reporting schedule before the levy is introduced in 2017.

• Amendment 50B, moved by Baroness Sharp aimed at requiring prescribed public bodies “to provide arrangements which facilitate small businesses … entering into apprenticeship agreements.”67 It was withdrawn after Baroness Neville-Rolfe expressed the Government’s view that “it would be complex and confusing to require public sector organisations to duplicate the effort and provide additional resource”68 for this aim.

Clause 20 was agreed during Grand Committee.

Three of the amendments discussed in Grand Committee were eventually moved on Report:

• Lord Mendelsohn moved amendment 55 (amendment 49DA in Grand Committee) on clause 20 which read as: “55: Clause 20, page 34, line 18, after ‘(‘apprentices’)’ insert ‘in high quality and high level skills apprenticeships’”. There was a division on this amendment and it was not agreed.

• Amendment 57 (amendment 49E IN Grand Committee), moved by Baroness Sharp of Guildford (Liberal Democrat), read as: “57: Clause 20, page 34, line 19, at end insert – ‘( ) A prescribed body may set apprenticeship targets for its subcontractors.’” It was withdrawn.

• Amendment 58 (amendment 49F in Grand Committee) was moved by Baroness Sharp of Guildford. It read as: “58: Clause 20, page 34, line 36, at end insert – ‘( ) The regulations may specify that a proportion of the apprenticeship targets referred to in subsection (5) shall be reserved for – (a) young people leaving care, and (b) young people with physical and learning disabilities.’” It was withdrawn.

Only statutory apprenticeships to be described as apprenticeships (clause 21) Background

Clause 21 would amend the Apprenticeships, Skills, Children and Learning Act 2009. Clause 21(1) would insert a new section A11 into the 2009 Act, making it an offence to misuse the term ‘apprenticeship’ in the conduct of business, restricting the use of the term to specified statutory apprenticeships.

66 HL Deb 2 November 2015, c282GC 67 HL Deb 2 November 2015, c289GC 68 HL Deb 2 November 2015, c291GC

29 Enterprise Bill [HL] 2015-16

The move towards giving statutory protection to apprenticeships was inspired by arguments in The Richard Review of Apprenticeships (2012). The Review’s aim was to improve the quality of training, preventing the “drift towards calling many things apprenticeships which, in fact, are not”.69 The Review concluded that both the definition and the reputation of apprenticeships needed to be reaffirmed.

More specifically, the Review highlighted the risk of

diluting the brand, reducing value for money, and at times detracting apprenticeships, and those who are involved in offering them, from their core purpose and from where they can make the greatest impact70 [if no focussed and formal definition of what constitutes an apprenticeship was laid.]

It also recommended that apprenticeships be given the same status and have the same standards of examination as university degrees:

We cannot expect apprenticeships to be well regarded if we do not make it clear what they stand for. A university degree is valued in no small part because it is a degree. We infer from its award that the student met and exceeded a clear standard. The same is not true for apprenticeships. That must change.71

According to the Regulatory Policy Committee:

The Department acknowledges there is little evidence to suggest that misuse of the term ‘apprenticeship’ is widespread and therefore expects the overall impact on business to be minimal.72

The costs to business of complying with this legislation are estimated to be from £10,000- £110,000.73

Only statutory apprenticeships to be described as apprenticeships (clause 21(1), inserting new section A11)

A11 would create a statutory definition of ‘apprenticeship’, and would make it an offence to describe a course or training as an apprenticeship if the course or training is not a statutory apprenticeship. It would also make it an offence to describe a person as an apprentice when they are undertaking a non-prescribed course.

The offence can only be committed by training providers and cannot be committed by employers in relation to apprentices working for them (subsection 2).

Per section A11(5)-(6), a person guilty of the offence would be liable on summary conviction to a fine. The offence may be committed by a body corporate and/or one of its officers.

A11(3) details which ‘statutory apprenticeships’ will be protected from misuse. They are set out below.

69 Doug Richard, The Richard Review of Apprenticeships, p.25 70 The Richard Review of Apprenticeships, p.37 71 The Richard Review of Apprenticeships, p.6 72 Regulatory Policy Committee, Preventing misuse of the term ‘apprenticeships’ in

relation to unauthorised training, 13 October 2015, p.1 73 Department for Business, Innovation and Skills, Impact Assessments: Summary

Document, Enterprise Bill, September 2015, pp.12-13

Number , 26 January 2016 30

Approved English apprenticeships

‘Approved English apprenticeships’ as defined in Schedule 1 of the Deregulation Act 2015 will become statutory apprenticeships. An approved English apprenticeship is an arrangement which

(a) takes place under an approved English apprenticeship agreement, or

(b) is an alternative English apprenticeship.74

An approved English apprenticeship agreement is an agreement which

(a) provides for a person (‘the apprentice’) to work for another person for reward in a sector for which the Secretary of State has published an approved apprenticeship standard under section A2,

(b) provides for the apprentice to receive training in order to assist the apprentice to achieve the approved apprenticeship standard in the work done under the agreement, and

(c) satisfies any other conditions specified in regulations made by the Secretary of State75

An alternative English apprenticeship is “an arrangement under which a person works which is of a kind described in regulations made by the Secretary of State”.76

Apprenticeship agreements within the meaning of section 32

‘Apprenticeship agreements’ as defined in section 32 of the Apprenticeships, Skills, Children and Learning Act 2009 will also be statutory apprenticeships and protected from misuse. This Act defines the conditions of an ‘apprenticeship agreement’ as:

(a) that a person (the ‘apprentice’) undertakes to work for another (the ‘employer’) under the agreement;

(b) that the agreement is in the prescribed form;

(c) that the agreement states that it is governed by the law of England and Wales;

(d) that the agreement states that it is entered into in connection with a qualifying apprenticeship framework77

Arrangements to undertake any other kind of working

These kinds of working may include self-employment and working otherwise than for reward.78 According to section 1(5) of the Apprenticeships, Skills, Children and Learning Act 2009, the ‘alternative English completion conditions’

(a) apply in cases where a person works otherwise than under an apprenticeship agreement, and

(b) are specified in regulations.79

74 Deregulation Act 2015, Schedule 1, Part 1, para 1, Chapter A1, A1(2) 75 Deregulation Act 2015, Schedule 1, Part 1, para 1, Chapter A1, A1(3) 76 Deregulation Act 2015, Schedule 1, Part 1, para 1, Chapter A1, A1(4) 77 Apprenticeships, Skills, Children and Learning Act 2009, section 32(2) 78 Apprenticeships, Skills, Children and Learning Act 2009, section 1(6) 79 Apprenticeships, Skills, Children and Learning Act 2009, section 1(5)

31 Enterprise Bill [HL] 2015-16

Apprenticeship framework is defined in the Apprenticeships, Skills, Children and Learning Act 2009 as

a specification of requirements [that must] (a) be at a particular level stated in the specification, and

(b) relate to a particular skill, trade or occupation included in an apprenticeship sector stated in the specification.80

Arrangements that are identified by the competent authority as apprenticeships

These are:

• Arrangements made under section 2 of the Employment and Training Act 1973 identified as apprenticeships by the competent authority.

• Arrangements made under section 17B(1) (a) of the Jobseekers Act 1995 identified as apprenticeships by the competent authority.

• Arrangements made under section 2(3) of the Enterprise and New Towns (Scotland) Act 1990 identified as apprenticeships by the competent authority.

• Arrangements made under section 1 of the Employment and Training Act (Northern Ireland) 1950 identified as apprenticeships by the competent authority.

Comments on clause 21 during Second Reading in the Lords

Members of the Lords largely agreed with the principle of protecting the brand and quality of apprenticeships. Lord Mendelsohn said:

There are of course some major concerns about the operation of apprentices and a number of cases of abuse and of poor quality.81

However, some contested the means chosen to address these issues. Lord Stoneham said:

We are happy to see protection for the branding and quality of apprenticeships, but should the emphasis now be on the power to set targets in the public sector when the issue there should be largely one of the resources and will in that sector to do apprenticeships?82

Lord Baker added:

This is an entirely appropriate cause for the Government to be committed to … but they must get it right. They must focus on the high quality of apprenticeships, because that is where we need it most. If you are going to have a really enterprising economy, you will have to have many more technicians in it, inventing and designing things. That should be our target in our apprenticeship policy.83

80 Apprenticeships, Skills, Children and Learning Act 2009, section 12 81 HL Deb 2 October 2015, c20 82 HL Deb 2 October 2015, c22 83 HL Deb 2 October 2015, c27

Number , 26 January 2016 32

Amendments to clause 21

Two amendments relating to clause 21 were discussed by the Grand Committee:

• Amendment 51, moved by Baroness Sharp, required that in describing an apprenticeship as a statutory apprenticeship scheme, it should be stipulated whether it is a higher level apprenticeship or not. The amendment was withdrawn after Baroness Neville-Rolfe responded that this obligation already existed as a non-statutory instrument.

• Amendment 51ZA was moved by Lord Stevenson and requested that the role given to local authority trading standards in enforcing the appropriate use of the term ‘apprenticeship’ be removed. The amendment was withdrawn after Baroness Neville-Rolfe explained that the Government were still consulting on this point but that they felt local authority trading standards would be the best institution to enforce this clause.

Clause 21 was agreed during Grand Committee.

5.3 Comment Comment on clause 20 No Government consultation was run on clause 20. Comments from stakeholders on the issue have been mixed albeit limited.

Mark Boulting, managing director of Skills Group (South West), welcomed the policy:

A move requiring public bodies such as the police, prisons and health service to take on apprentices was also ‘very positive’.84

Jenny Allen, policy leader at the National Housing Federation, voiced concerns shared by many in the housing sector about the impact of the policy on their industry:

As currently drafted the definition of a public body is sufficiently wide that it could include larger housing associations. This is a concern and we are currently in discussions with Ministers and civil servants about the potential impact on the independence of the sector by using such a definition, plus the risk that a formal target may stifle innovation in the sector.85

As emphasised by Baroness Warwick during the Second Reading, housing associations are a significant employer of apprentices86 and are thus particularly vigilant about the repercussions of this policy on their industry.

Concerns were also raised by key local government stakeholders against centrally imposed apprenticeship targets. The Local Government

84 Mark Boulting quoted in Torquay Herald Express, ‘Cautious welcome to

apprenticeships legal protection’, 8 July 2015 85 Jenny Allen, ‘Is housing ready for the apprenticeship ascendancy?’, 29 October 2015 86 “Over the last three years housing associations have directly employed around

12,000 apprenticeship starters”, Jenny Allen, ‘Is housing ready for the apprenticeship ascendancy?'

33 Enterprise Bill [HL] 2015-16

Association expressed its opposition to the public sector apprenticeship targets

on the basis that current and further cuts to budgets will undoubtedly impact on local government workforce, so a legal obligation to hire apprentices would be unhelpful.

The LGA argued that “with devolved funding, councils can support the target in other ways, which the Bill does not recognise” and encouraged its members to “raise with parliamentarians [their] concerns about the target.” 87

Government consultation on clause 21 The Government ran a consultation on protecting the term ‘apprenticeship’ from misuse. In its response to the consultation the Government summarised the 92 responses it received from employers, training providers, colleges, schools, universities, apprentices and representative groups.

“The majority of the responses were supportive of the aims of the legislation and the need to protect the term ‘apprenticeship’ from misuse.” However, some respondents expressed concerns about the insufficient breadth of the measure – “wanting the policy to go further and also to apply to employers.” Others feared that this policy would de-value and discredit apprenticeships that have already been achieved.88

Other comment on clause 21 A government press release cites support from, among others, Leo Quinn, chief executive of Balfour Beatty (a firm employing 150 apprentices a year).89

Ofsted chief inspector Sir Michael Wilshaw has backed the policy but also highlighted the challenges it did not solve:

Too many of our further education providers have focussed for too long on equipping youngsters with dubious qualifications of little economic relevance. […]Being an apprentice should be a badge of honour. The reforms now working their way through the system are commendable. But we are kidding ourselves if we think our good intentions are enough. We have won the argument over the value of apprenticeships. We have yet to make them a sought-after and valid alternative career choice for hundreds of thousands of young people.90

87 All quotes from: Local Government Association, People and Places Board,

'Employment and Skills: Update Paper', 19 October 2015 88 All quotes from: Department for Business, Innovation and Skills, 'Government

response to the consultation on protecting the term ‘apprenticeship’ from misuse', p.5

89 Bogus training courses come under fire, Gov.uk, 20 September 2015 90 Office for Standards in Education, Children’s Services and Skills, Press release: ‘Too

many apprenticeships not meeting the needs of young people, employers or the economy’, 22 October 2015

Number , 26 January 2016 34

6. Late payment of insurance claims (Part 5)

6.1 Introduction There may be few industries where the expectations of the customers and their actual experience are so widely different. This is partly due to the complexity of the industry, the sometimes difficult maths and legal framework within which it works, and partly because when it is called upon it is frequently at a time of loss or stress. It may therefore be little surprise to find that, even excluding PPI complaints, general insurance accounts for around 10% of complaints to the Financial Ombudsman Service (FOS). Including PPI, the total has been as high as a staggering 84% of all complaints to the FOS on any subject.91

With such high levels of consumer dissatisfaction it is unsurprising that the insurance industry has attracted a significant amount of EU and national government legislative activity in recent years. Some of this, such as the Solvency II directive, is part of the response to the financial crisis. Other measures relate to technical aspects of the industry and how it affects policyholders’ experience of making claims or, in the case of motor insurance, government attempts to reduce fraud.

Prior to this measure the Law Commission and the Scottish Law Commission have been reviewing insurance contract law and have made recommendations to government, which have been implemented over the past few years.

The most recent legislation is the Insurance Act 2015. The Act gives new statutory remedies for insurers if a policyholder has submitted a fraudulent claim, namely if a claim is tainted by fraud, the policyholder forfeits the whole claim. This is one part of an ongoing drive between government and the industry to reduce fraudulent claims. As part of this the 2015 Autumn Statement announced:

The government is determined to crack down on the fraud and claims culture in motor insurance.… The government intends to introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year.92

Other measures have been focussed on supporting consumer rights. For example, the 2015 Act reduced the opportunities for insurers to refuse claims based on policyholder breaches of policy conditions not relevant to the loss suffered. Together with the Consumer Insurance (Disclosure and Representation) Act 2012, the 2015 Act also improved the rules about what information must be disclosed to the insurer before the insurance contract is entered into, and introduced a more proportionate scheme of remedies for failure.

91 Financial Ombudsman Service Annual Review 2014/15 92 HM Treasury, Spending Review and Autumn Statement, Cm 9162, 2015

35 Enterprise Bill [HL] 2015-16

The targeted measure in this Bill continues the government’s aim to balance the rights of insurers and policyholders. All of these reforms reflect recommendations made by the Law Commission and the Scottish Law Commission to the government.

6.2 The Bill Clauses 22, 23 and 24 (Part 5) of the Bill relate to the late payment of insurance claims. At its simplest an insurance contract says that in return for a premium, if X happens we, the insurer, will pay £Y. However, both the contract itself and the common law are silent as to when the payment should be made. There are good reasons for this.

Some delay in payment might be necessary if it means that the full effects of an injury or loss can be properly assessed. Repairs to vehicles or property can take unpredictable periods to finish with a consequential impact on final costs or claims. However, in other situations, a delay in payment to a policyholder may be unjustified and may cause the policyholder to suffer additional losses which cannot, at present, be claimed from the insurer.

A glance at cases of this type brought to the FOS reveals, rightly or wrongly, that many policyholders get the impression that the insurance company has deliberately delayed payment for financial reasons.

The FOS responded to a consultation on insurance contract law carried out by the Law Commission. In its response the FOS wrote about late payment that:

We have already been applying a remedy of damages for late payment for some time and there is broad acceptance within the industry about the approach we take. However, this approach is inconsistent with the current legal position in the case of Sprung.

…

The current law is not only inconsistent with our own approach but it also runs contrary to recognised industry practice. If there is a general consensus that the law is unfair and out of line with accepted practice – which the consultation seems to suggest – then we consider there to be a strong case for reform in this area.

We therefore agree with the proposal that insurers should be under a statutory duty to pay valid claims within a reasonable time and that failure to do so should result in damages for any foreseeable losses incurred. We also consider that interest should run from the date of the breach rather than from the date of the loss – and the limitation date should run from this date as well for the sake of simplicity.

…

The proposals set out within the consultation would bring the law more in line with our own approach to such cases and would eliminate current inconsistencies.

Clause 22 amends the Insurance Act 2015 by inserting a new section 13A. The first part of the new section states:

Number , 26 January 2016 36

It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.

The remainder of the new section, 13(2) and (3), clarify that a reasonable time for these purposes includes a reasonable time to investigate and assess the claim, and cites examples of things which may need to be taken into account, such as the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance, or factors outside the insurer’s control. It also confirms that if an insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable)—

(a) the insurer does not breach the implied term merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but

(b) the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.

New section 13A(5) provides that remedies (most likely damages) would be in addition to:

(a) any right to enforce payment of the sums due, and

(b) any right to interest on those sums (whether under the contract, under another enactment, at the court’s discretion or otherwise

Clause 23 would insert a new section 16A into the Insurance Act 2015, restricting the ability of insurers to avoid the implied term by inserting their own terms, or “contracting out”, to negate it. Insurers in the consumer insurance context are completely prevented from being able to contract out of the implied term, and insurers in the business insurance context may only contract out where they fulfil certain transparency requirements, namely to bring the term to the attention of the policyholder and ensure that it is clear and unambiguous. This is aimed at protecting non-business consumers who may be less able to negotiate insurance contract terms, yet preserving freedom of contract that is so valued in the commercial insurance sector.

Clause 23 was agreed to without debate in committee and was not debated on Report.

Clause 24

In the Lords committee stage the Earl of Kinnoull moved an amendment which would have excluded parts of the non-consumer or non-retail market from the Bill’s provisions.93 Speaking to the amendment, he reminded Peers of London’s international market standing and the competitive pressures under which it operated. Clause 22, he said:

could, the LMA, the IUA and I feel, lead to an “unreasonable delay” cause of action being introduced as an extra part of many disputed claims, leading in turn to extra claims costs and a lot of

93 HL Deb 2 November 2015 c304GC

37 Enterprise Bill [HL] 2015-16

aggravation for the insurers concerned—in other words, grit in the machinery. That would naturally be less attractive to capital. Many factors decide where you want to deploy your capital as an insurance group, but I put it to the Minister that one wants to try to ensure that we do not have grit in the London machine, because any redirection of capital elsewhere would be damaging to the London markets.94

His amendment would have excluded reinsurance contracts (those between insurers and not involving third parties) and big risks of over £6 million. Lord Flight supported the amendment and said that the risk was that the really big premium business could become ‘bogged’ down with new legal processes and that the market could move abroad as a result.

Responding, Baroness Neville-Rolfe said that the exclusions suggested would affect the very people that the Bill sought to help:

The clauses in the Bill are the product of a long Law Commission project involving years of engagement with the insurance industry. Stakeholders argued strongly in favour of a single regime for all non-consumer insurance contracts, avoiding boundaries which, by their nature, are complex and arbitrary, and add to legal expense. If different rules applied to different types or sizes of business, insurers would have to identify which side of the boundary each prospective policyholder fell before entering into the policy. This would severely slow down and add expense to the placement process.

The particular definition that the noble Earl tabled for “large risks”, based on the Solvency II definition, demonstrates the difficulty of defining boundaries.

The definition is complex and has several different elements, but it would exclude all insurance contracts involving a policyholder with a net turnover of €12.8 million and more than 250 employees. This would exclude many medium-sized businesses, which, frankly, are precisely the target of the Bill.95

Clause 22 was agreed to. It was returned to on Report where the Earl of Kinnoull and Lord Flight tabled amendments to introduce special rules on deadlines for making late payment claims and on privilege over legal advice received by an insurer as to its ability to defend a disputed insurance claim. Both amendments were withdrawn, but at Third Reading the government tabled an amendment which reflected the proposed change to the time limit for making late payment claims. The Minister, Lady Baroness Neville-Rolfe, said:

Due to the volume of claims which insurers deal with, and the capital requirements to which they are subject, insurers have a rather unique need for certainty in knowing when they have satisfied all their liabilities in respect of a certain claim.

The amendment adds a new provision to the Limitation Act 1980, which applies in England and Wales. It means that a policyholder must bring any late payment claim within one year of the insurer having paid all sums due in respect of the initial insurance claim. This may include sums paid under a binding settlement contract between the insurer and the policyholder, or paid as a result of a

94 HL Deb 2 November 2015 c305GC 95 HL Deb 2 November 2015 c309GC

Number , 26 January 2016 38

court award against the insurer. Until the underlying insurance claim has been paid, the usual limitation period of six years from the breach of contract would continue to apply.

It is reasonable to expect a policyholder to bring a claim for late payment within a year of receiving payment of the insurance claim, so the amendment does not prejudice them unduly. It also has the potential to protect the vast majority of policyholders, who will never need to bring a late payment claim, from any premium increases that may result as a consequence of insurers’ increased costs.

The amendment was agreed to, and forms the clause 24.

6.3 Comment The proposed clauses closely follow the recommendations made by the Law Commission and the Scottish Law Commission and have the support of the FOS and the general insurance market, including the Association of British Insurers. As indicated in the Lords’ proceedings elements of the UK specialist insurance market are concerned that clause 22 will create the possibility of speculative litigation and open-ended liability for late payment claims. However, that section of the insurance market strongly supported the amendment to the time limit for making late payment claims (now clause 24), which provides them with additional certainty.

39 Enterprise Bill [HL] 2015-16

7. Non-domestic rating (Part 6) Part 6 of the Bill would introduce two minor adjustments to business rates legislation. The first amends the Commissioners for Revenue and Customs Act 2005 to facilitate the sharing of information between the Valuation Office Agency and local authorities. The second arises from the Government’s review of business rates. This review has been under way since April 2014, with a final outcome expected at the 2016 Budget.96 The clauses in the Bill provide powers to give effect to recent consultation proposals to introduce a new appeals system, Check, challenge, appeal: reforming business rates appeals, published in October 2015.

7.1 Disclosure of information Sections 18 and 19 of the Commissioners for Revenue and Customs Act 2005 introduced a requirement for staff of HMRC to keep customer details confidential. They may disclose information which relates to a function of HMRC; or in other specified circumstances, including when the person to whom the information relates consents. A member of staff who disclosed confidential information would be guilty of a criminal offence. This requirement also covers the staff of the Valuation Office Agency (VOA).

The VOA demands information from business rate-payers in order to inform the assessment of rateable values of non-domestic properties. Billing authorities frequently seek similar information from the same businesses in relation to business rate bills. Under the 2005 Act, information can only be shared between the VOA and billing authorities in limited circumstances, mainly to support one of the VOA’s functions. Before 2005, it was common for the VOA to share rate-payer names and property details with billing authorities (the local councils responsible for collecting business rates). The consequences of this were noted in the Government’s interim findings of the Business Rates Review:

As a result, it is common for ratepayers to have to provide the same information about their business or property to both the Valuation Office Agency and the local authority. It is also possible for a business to be inspected twice for business rates in a short time frame by both the Valuation Office Agency and the local authority.97

…the government will look for a suitable legislative opportunity to allow greater sharing of information on non-domestic properties between the Valuation Office Agency and local authorities.98

Clause 25 seeks to remedy this by introducing new sections 63A and 63B into the Local Government Finance Act 1988. New section 63A

96 See links to the Government’s March 2015 terms of reference and discussion paper;

the December 2014 interim findings document; and the April 2014 discussion paper.

97 DCLG, Administration of Business Rates Review: Interim Findings, December 2014, p. 26-7

98 Ibid., p. 29

Number , 26 January 2016 40

provides that VOA staff may provide information to a ‘qualifying person’ for a ‘qualifying purpose’. A ‘qualifying person’ includes billing authorities, major precepting authorities,99 the Secretary of State and the Welsh Ministers. It also includes any person exercising the functions of, or providing services to, billing authorities or major precepting authorities: this ensures that information can be provided to any private contractors undertaking work that is a ‘qualifying purpose’ (sub-section (3c-d)). A ‘qualifying purpose’ is the purpose of carrying out the functions associated with the non-domestic rating system, in Part 3 of the 1988 Act (sub-section (4)). Sub-sections (5) and (6) permit the Secretary of State to prescribe additional qualifying persons and purposes.

New section 63B (1) provides that information provided under section 63A or B cannot be further disclosed unless this is done for a ‘qualifying purpose’ under new section 63A (4); or for court proceedings or a court order. However, information may be disclosed with the consent of the person to which it relates. Information that is disclosed must not contain a person’s identity, nor must it be possible to deduce their identity (sub-section (4)).100

Sub-sections (4) to (10) specify that disclosing information relating to a person which specifies their identity, or which can be deduced from it, would be a criminal offence. Sub-section (5) provides that a belief that the information was already public, or a reasonable belief that its publication was lawful, are defences.

New section 63C provides that revenue and customs information disclosed under new sections 63A or 63B that identifies the person to whom the information relates, or enables their identity to be deduced, is exempt from the Freedom of Information Act.

These new provisions apply only to England and Wales, where the VOA is responsible for rateable values. Its counterparts in Scotland and Northern Ireland are not affected.

7.2 Business rates appeals Clause 26 would enable the implementation of some of the proposals in the consultation document Check, challenge, appeal: reforming business rates appeals, published in October 2015.101 This followed proposals in the Government document Administration of Business Rates Review: Interim Findings, published in December 2014. The consultation concerns the operation of the business rates appeals system by the Valuation Tribunal for England. Concerns have been

99 These include county councils, fire and rescue authorities, and the GLA i.e. other

local authorities which receive part of their income from business rates revenue. 100 This could apply in instances where the name and address of a property is withheld,

but where it is sufficiently unique that it can be identified by its other characteristics: for instance, the only large hotel near a particular village. Anonymised information of this kind can often be used as evidence within the business rate appeals process.

101 See also DCLG, Administration of Business Rates Review: Interim Findings, December 2014, p. 19

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expressed since 2011 at the Valuation Tribunal’s backlog of cases and the time taken to hear appeals.102

The consultation applies to England only, as business rates are devolved to Scotland, Wales and Northern Ireland. It closed on 4 January 2016.

The consultation proposes to introduce a new three-stage appeal process, entitled ‘check, challenge, appeal’. The ‘check’ stage is intended to enable the VOA and the ratepayer to reach agreement on a rateable value. The intention is that the majority of proposals will be resolved quickly at this stage: the consultation states “Routine or speculative challenges which are not supported by a robust case will be identified and dealt with swiftly, and this will have benefits for ratepayers who raise genuine issues…”.103

If the ratepayer still disagrees with their rateable value, they may initiate the ‘challenge’ stage. This must be done within four months of the end of the ‘check’ stage. Any appeal that has spent more than twelve months at ‘check’ stage is to move on automatically to the ‘challenge’ stage.

At the ‘challenge’ stage, the ratepayer must set out the points on which they have been unable to agree at ‘check’ stage, and they must propose an alternative rateable value, with supporting evidence. Currently, ratepayers are not required to propose an alternative value when challenging their rateable value:

3.19 When ratepayers make an appeal against their rateable value, the law requires them to include a statement of why they believe the rateable value is inaccurate.4 However, the system allows ratepayers to lodge challenges with little or no investigation or explanation of why they think the rateable value is wrong. Normally a ratepayer need only claim that their rateable value is ‘incorrect and excessive’ to be able to make a challenge.

3.20 As a result the Valuation Office Agency receives a large number of appeals on which it can take no action until it has held discussions with ratepayers….. Most appeals are in some way seeking a reduction in the rateable value either for a physical change or to correct the level of value. Therefore, the alternative valuation of the property should be the key part of any formal challenge. Other appeals may concern the size of the property or how it is occupied. But at the moment very few challenges include a valuation or an explanation or what changes are needed to the assessment.104

A challenge which does not include an alternative rateable value and supporting evidence will be returned as invalid (though it can be resubmitted within the four-month time limit).105 The VOA must then issue a decision notice or reach agreement with the ratepayer.

The ‘appeal’ stage is the third stage. If the ratepayer is still unhappy with their rateable value following the decision notice issued under the 102 For instance, see HC Deb 28 November 2013 c387W; HL Deb 28 October 2015 c51 103 DCLG, Check, challenge, appeal: reforming business rates appeals, 2015, p. 7 104 DCLG, Administration of Business Rates Review: Interim Findings, 2014, p. 21 105 DCLG, Check, challenge, appeal: reforming business rates appeals, 2015, p. 12. The

time limit pauses whilst the VOA is deciding whether to accept the challenge as valid.

Number , 26 January 2016 42

‘challenge’ stage, or the case has been at ‘challenge’ stage for 18 months, they may appeal to the Valuation Tribunal for England, as at present.

An appeal must be made within four months of the decision notice at ‘challenge’ stage (or within four months of the case having remained at ‘challenge’ stage for 18 months). The ratepayer must give a substantive explanation of why they still disagree with the VOA’s valuation.

The Government proposes to restrict the introduction of substantial new evidence at this stage by either party to the appeal, save at the mutual agreement of the parties.106 It also proposes to introduce civil penalties of up to £500 for the provision of false information, with a right of appeal.

The Government also proposes to introduce fees for the appeal stage, either in the range of £100-300 as with other tribunals, or fees related to rateable value. The consultation document said:

The current business rates appeals system allows ratepayers to challenge their rateable value and proceed to an independent Tribunal at no charge. In contrast, charges are common in other Tribunals. The government would welcome views on whether introducing a charge could help to reduce the number of speculative appeals in the system.107

7.3 The Bill Clause 26 would allow these suggestions to be given effect through regulations made by the Secretary of State, by introducing some new sub-sections into section 55 of the Local Government Finance Act 1988. They apply only to valuation lists in England. New sub-section 55 (4A) permits regulations to be made specifying what steps must be taken before the ratepayer can make a proposal. This will allow the introduction of the three stages of the new appeal process.108

The regulations may also define the length of time and circumstances in which any of the steps may be taken (new sub-section (4A) (b)). The Government’s intention is to permit ratepayers to move from the ‘check’ stage to the ‘challenge’ stage after twelve months if the appellant and the VOA have been unable to agree; and to move from the ‘challenge’ stage to the ‘appeal’ stage after eighteen months if no decision has been issued.109 The regulations may also permit valuation officers to impose a fine of up to £500 on any person who knowingly, recklessly or carelessly gives false information as part of this process, as proposed by the 2015 consultation paper.110

New sub-section 55(5A) would permit regulations to be made covering the appeal process, specifically regarding the grounds on which an appeal may be made; matters which cannot be taken into account by the Valuation Tribunal; when new evidence may be admitted; and to

106 Ibid., p. 16 107 Ibid., p. 23 108 See DCLG, Check, challenge, appeal: reforming business rates appeals, 2015, p. 8 109 Ibid., p. 10-11. 110 Ibid., p. 11

43 Enterprise Bill [HL] 2015-16

permit the establishment of a regime of fees for tribunal appeals, including circumstances in which those fees are to be refunded.

In debate on the Bill in the House of Lords, the Earl of Lytton stated that the clause did not provide a level playing field between businesses and the Valuation Office Agency, and suggested that the VOA’s practices were partly responsible for this situation:

…one would suppose that in responding to a business that has started the appeal process ultimately leading to appeal, the valuation office would be happy to discuss the basis of the valuation underlying a property tax at an early stage. However, I am informed that there has been an increasing reluctance by the agency to divulge anything until the matter is literally listed before the valuation tribunal. That is merely adding to the problem and the likelihood of sustained appeals.

To say that Clause .. [23] is unwelcome is an understatement. Admittedly, it facilitates the sharing of revenue information with certain other bodies, but it also makes clear what it does not permit—in this case the sharing of information with the ratepayer and his professional valuer. This is an impediment to progress.111

The Earl of Lytton and others made similar points at Report stage in the House of Lords. Lord Mendelsohn suggested that the large number of appeals received by the VOA reflected the lack of information made available to ratepayers unless they pursued an appeal. Lord Stoneham of Droxford quoted Professor Graham Zellick, until recently president of the Valuation Tribunal for England:

…the ratepayer is never given the full explanation for the valuation. As a result, every time there is a new rating list, ratepayers initiate a challenge … partly to protect their position but chiefly to ‘flush out’ more information … Unless information is given up front, the system will remain defective and unsatisfactory and unjust. I don’t know any other tax that can be levied where the taxpayer doesn’t understand in full down to the last detail the basis on which the taxman has calculated the tax due. It’s unprecedented, it’s unique and it’s wrong.112

The Minister, Baroness Neville-Rolfe responded that:

The reforms promote full and early engagement between parties. Factual information will be established during check stage, with arguments and evidence exchanged at the beginning of the second challenge stage—far earlier than happens at present. This significantly brings forward the point at which the Valuation Office Agency is able to provide information to address the ratepayer’s case.113

On a more technical matter, Alistair Townsend of the IRRV has suggested that the provisions as drawn will not apply to information used to set up or administer a Business Improvement District.114

111 HLDeb 12 Oct 2015 c51-2 112 HLDeb 25 Nov 2015 c793 113 Ibid., c. 798 114 Alistair Townsend, “Causing more problems than it solves”, Insight, December

2015, p.15

Number , 26 January 2016 44

8. Other enterprise-related provisions (Part 7)

8.1 Industrial Development (clauses 27 & 28) Background Under certain circumstances, the Government can provide assistance to specific businesses or projects. Clauses 27 & 28 of the Bill would update and broaden certain statutory powers in the Industrial Development Act 1982 by increasing the amount the Government can provide to an individual project from £10 million to £30 million (before a resolution of the House of Commons is required), and by classifying broadband internet as a basic service.

The Industrial Development Act 1982

The clauses would amend the Industrial Development Act 1982 (IDA). The IDA consolidated several earlier Acts that provided for government assistance to industry. In short, the IDA allows government to provide assistance to:

• businesses in any part of the UK that cannot get support from other sources, the continued existence of which are in the national interest and would benefit the broader economy (IDA, s.8)115

• in Great Britain that seek to improve basic services such as power, water or transport (IDA, s.13)116

Section 8 of the IDA

Section 8 allows financial assistance to be provided to businesses anywhere in the UK. Initially, the cumulative total of all funding that could be provided under section 8 was set at £1.9 billion. This has been increased by subsequent legislation and the Government is now entitled to provide a cumulative total of up to £12 billion.117

Schemes that have benefitted from support under section 8 include the now closed Vehicle Scrappage Scheme, the Start-Up Loans Scheme and the Regional Growth Fund.

The accumulated amount of all support provided under section 8 since 1983 totals £5.8 billion (as of 31 March 2015).118

Section 8 also states that the Government may provide financial assistance of up to £10 million to any one project (this is known as the ‘per-project limit’). Any financial assistance over this amount requires a resolution from the House of Commons. In 2014/15, Parliamentary approval for support exceeding £10 million was sought on three occasions: with reference to the British Business Bank programmes, the

115 Industrial Development Act 1982, Part III, Section 8 116 Industrial Development Act 1982, Part IV, Section 13 The cumulative limit on expenditure was extended by the Industrial Development (Financial Assistance) Act 2003 and by the Industry and Exports (Financial Support) Act 2009. 118 BIS, Industrial Development Act 1982, Annual Report 2014/15, 2015, p 3.

45 Enterprise Bill [HL] 2015-16

Venture Capital Fund and the EU Emissions Trading System and Carbon Price Support Mechanism.119

Section 13 of the IDA

Section 13 allows the Government to provide assistance to projects in Assisted Areas which seek improvements to the basic services in that area. The services considered “basic” include transport, power, lighting, heating and water and sewerage.

The powers granted under section 13 have not been used since 2010/11. In that year, the roads connecting an industrial estate in Gainsborough received grant funding of £295,000.120

Consultation on the Industrial Development Act 1982

The Government consulted on reform of the IDA between July and November 2011. The Government’s response was published in June 2012.121

A proposal to increase the per-project cap from £10 million to £30 million was met with strong support from respondents to the consultation. Some respondents argued for it to be increased to £50 million to reflect the increase in UK GDP over the period 1982 to 2011 (as opposed to increasing in line with inflation over this period, as clause 27 specifies).

There was also strong support among respondents for the inclusion of telecommunications in the list of basic services that could be supported by Government.

Further information on the Government’s broadband policy can be found in the House of Commons Library Briefing Paper, Fixed Broadband: Policy, Coverage and Speeds.

The Bill Allowable assistance under the Industrial Development Act 1983 (Clause 27)

Clause 27 of the Enterprise Bill would amend section 8 of the IDA. It would increase the threshold under which the Government can provide assistance to any one project without a resolution of the House of Commons, from £10 million to £30 million. This is intended to reflect inflation since 1982.

The powers in clause 27 apply to the UK Government and to the Welsh Government. Scottish Government Ministers have declined to increase the limit on the amount which can be spent without resolution, since they no longer make use of the IDA.122

Debate in the Lords

The clause proved largely uncontroversial in the Lords. In the Second Reading debate, Labour and the Liberal Democrats supported the

119 Ibid, p 41 120 BIS, Industrial Development Act 1982, Annual Report 2010/11, 2011, p 121 BIS, Revision of the Industrial Development Act 1982 Consultation, Government

response, June 2012 122 BIS, Enterprise Bill [HL], Explanatory Notes, September 2015, p34

Number , 26 January 2016 46

clause, with Baroness Stoneham (Liberal Democrats) stating that “the improvements of financial assistance in line with inflation have our support.”123

However, Lord Borwick (Conservative) expressed scepticism:

Industrial development is a noble aim, but I am sure that most taxpayers and businesses do not agree that Ministers can pick winners better than the market, so … I am nervous about increasing the threshold for industrial development from £10 million to £30 million.124

Despite this, the clause was agreed without debate at the Lords Committee Stage.125

Grants etc. towards electronic communications services and networks (Clause 28)

Clause 28 of the Bill expands the scope of section 13 of the IDA so that financial assistance may be provided for electronic communications (for example, broadband internet access).

The clause would give Ministers the power to make grants or loans to improve the communications facilities (networks, services and associated facilities) in any area of the UK. The changes are designed to enable Ministers to support the provision of electronic communication facilities across the UK, such as the roll out of broadband.126

Debate in the Lords

As with clause 27, clause 28 was supported by Labour and the Liberal Democrats at the Lords Second Reading, with Baroness Stoneham stating that “widening support for the electronic communication sector is welcome.”127

However, there were some critical comments. Lord Haskel (Labour) said that limited funds for broadband roll out “is not the problem.” Rather, he argued that the Bill should “increase the powers of Ofcom” so that it can increase its scrutiny of competition in the sector.128

Lord Stevenson (Labour) commented that “it seems a little strange” that the Bill would enable Ministers to spend more on broadband roll out whilst the Department for Business Innovation and Skills’ (BIS) budget was being reduced.129

Baroness Neville-Rolfe, summing up for the Government at the end of the Second Reading debate, argued that the IDA was over 30 years old and needed to be updated to:

reflect current economic realities such as the need to be able to fund broadband infrastructure.130

123 HL Deb 12 October 2015 c21 124 HL Deb 12 October 2015 c23 125 HL Deb 4 November 2015 GC318 126 BIS, Enterprise Bill [HL], Explanatory Notes, September 2015, p34 127 HL Deb 12 October 2015 c23 128 HL Deb 12 October 2015 c78 129 HL Deb 12 October 2015 c83 130 HL Deb 12 October 2015 c87

47 Enterprise Bill [HL] 2015-16

She noted the progress being made towards meeting the Government’s target of achieving superfast broadband coverage to 95% of premises by December 2017.

Clause 28 was agreed without debate at the Lords Committee Stage.131

8.2 UK Government Investments Limited (clause 29)

Clause 29 is a new clause, inserted on Report, which would give the Treasury specific powers with respect to a new UK financial body, UK Government Investments (UKGI).

In May 2015 the Chancellor, George Osborne, announced the creation of a new body whose role was to “deliver the biggest ever sale of publicly-owned corporate and financial assets”.132 UKGI would absorb the functions of the two government organisations which currently hold and manage government business assets, namely UK Financial Investments and the Shareholder Executive.

UK Financial Investments The financial crisis left the UK government owning all, or part, of several financial institutions as part of the initiative to inject capital into the failed institutions. The Treasury set up a separate company, UK Financial Investments (UKFI) with responsibility for managing:

the Government’s shareholdings in The Royal Bank of Scotland Group plc and Lloyds Banking Group plc. UKFI is also responsible for managing the Government’s 100% shareholding and loans in UK Asset Resolution Ltd (“UKAR”) and its subsidiaries. UKAR was formed during 2010 to integrate the activities of Northern Rock (Asset Management) plc and Bradford & Bingley plc. UKFI managed the Government’s 100% shareholding in Northern Rock plc from Northern Rock plc’s formation on 1 January 2010 up to its sale to Virgin Money on 1 January 2012.

UKFI’s overarching objective is to manage these shareholdings commercially to create and protect value for the taxpayer as shareholder and to devise and execute a strategy for realising value for the Government’s investments in an orderly and active way over time within the context of protecting and creating value for the taxpayer as shareholder, paying due regard to the maintenance of financial stability and acting in a way that promotes competition.133

Information about UKFI’s activity and holdings can be found in its Annual Report.

Shareholder Executive The Shareholder Executive (ShEx) was formed in 2003 with a mandate to improve the government’s performance as a shareholder of publicly-owned businesses. Its ‘mission’ is:

131 HL Deb 4 November 2015 GC318 132 ‘Government creates new company to deliver record asset sales programme’,

Gov.uk, 20 May 2015 133 UK Financial Investments website

Number , 26 January 2016 48

To ensure that Government is an effective and intelligent shareholder in its part or wholly-owned businesses.

To manage Government’s interventions in the private sector to secure best value for the taxpayer.134

Many of the shareholdings are within the remit of the Department for Business, Innovation and Skills (BIS), including: Post Office Ltd; Green Investment Bank; the Insolvency Service; and Urenco. Others outside of BIS include the Royal Mint, NATS and Channel 4. Some of its larger projects in the 2013/14 year included the launch of the Green Investment Bank and the sale of part of Royal Mail.

The Bill The UKGI company has been incorporated with some of the officers of UKFI and ShEx retaining Board roles. Clause 29 of the Bill would give the Treasury the power to:

(a) provide grants, loans, guarantees or indemnities, or any other kind of financial assistance (actual or contingent) to UK Government Investments Limited, or

(b) make other payments to UK Government Investments Limited.

The Minister, Baroness Neville-Rolfe, outlined the reason for the new clause:

The work to facilitate the transfer of functions and operations from the Shareholder Executive into UKGI is well under way. The issue of funding powers has been identified in recent weeks, hence its late introduction into the Bill. The 1932 concordat between Parliament and the Government, now reflected in the Treasury’s manual, Managing Public Money, requires there to be specific statutory authority for significant items of ongoing government expenditure. The Government intend that UKGI will be directly funded by its parent department, HM Treasury. This is necessary to cover UKGI’s running costs in providing a service across government. The amendment is an administrative measure to enable the Shareholder Executive’s ongoing work to continue after its functions transition to UKGI and ensures that a specific funding power is in place in line with the 1932 concordat.135

The Minister also alluded to advantages of a joint body in terms of being able to attract sufficiently high quality staff and to be able to build a “culture [which] is suitably commercial, that it can attract and retain staff with commercial skills”.136

8.3 UK Green Investment Bank (clauses 30-32)

The Green Investment Bank (GIB) was set up by the Coalition Government to support green infrastructure investment projects. It is currently wholly owned by the Government. In 2015 it was announced that GIB would be moved into private ownership. As part of this process, the Government set out its intention of removing the statutory basis of the Bank, including its green purposes, through the Enterprise 134 Shareholder Executive Annual Review 2013/14; October 2014 135 HL Deb 30 November 2015 c936 136 Ibid., c940

49 Enterprise Bill [HL] 2015-16

Bill. The aim of this is to ensure any future GIB debt is not classified as public debt by the Office of National Statistics.

Background The March 2011 budget set out that the proposed GIB would be provided with an initial investment capital of £3bn by t Government, and would not be allowed to raise its own capital until at least 2015. The Bank would be able to carry out a wide range of transactions – including equity, debt and risk mitigation products – which were expected to catalyse an additional £15 billion of private investment in green infrastructure by 2014/15.

The Government published the five priority areas for investment for the Bank during the spending review period, together with the criteria for deciding on its location on 12 December 2011. It also announced the creation of an interim body, within the Department for Business, Innovation & Skills, Green Investments UK, which would have £775 million available to invest from April 2012. The location of the Bank, Edinburgh and London, was announced in March 2012.

Further background on the GIB can be found in the Library Briefing Paper on the Green Investment Bank.

Bank Launched

The European Commission approved state aid for the bank on 17 October 2012. It was then officially launched by Vince Cable in November 2012. Legislation that would enshrine the green purposes of the bank, providing powers for it to operate including funding, and ensuring its operational independence from Government were announced in the Queens Speech.

The Enterprise and Regulatory Reform Act 2013 set out statutory basis for the “green purposes” of the GIB:

(a) the reduction of greenhouse gas emissions;

(b) the advancement of efficiency in the use of natural resources;

(c) the protection or enhancement of the natural environment;

(d) the protection or enhancement of biodiversity;

(e) the promotion of environmental sustainability.

The legislation also sets out what assistance government is allowed to provide, and reporting requirements. Progress to date was set out in the 2015 Annual Report, published on 22 June 2015. GIB had made a profit for the first time in 2015 of £0.1m and committed £723m to 22 new projects worth a total of £2.5bn. In November 2015 it announced that it had backed projects worth with total value of more than £10bn.137

137 UK Green Investment Bank helps mobilise £10bn of capital into UK green

Infrastructure, Green Investment Bank website, 24 November 2015 (accessed 22 December 2015)

Number , 26 January 2016 50

Bank Privatisation Proposed

After ongoing press speculation the Government announced its intention to attract private capital into the GIB and thereby move the Bank into private ownership:

We have concluded that the best approach is to move GIB into private ownership subject to ensuring we achieve value for money. This should bring a number of important benefits, giving GIB greater freedom to operate across a wider range of green sectors in accordance with its green purposes, which are enshrined in legislation. It has always been our intention that GIB should leverage the maximum amount of private capital into green sectors for the minimum amount of public money. Moving the company into private ownership is a natural development for GIB that further delivers this aim. Our aim is that a transaction should result in GIB no longer being classified as a public sector body. This would mean GIB would be free to borrow capital so as to achieve its business ambitions without this having an effect on public sector net debt. The detail and timing of any transaction will be set out in due course.138

Reactions to the announcement were mixed, with many concerned that a change to private ownership would adversely impact GIB’s focus on green investment.139

In a written statement on 15 October 2015 the Government said that it would be necessary to amend the Enterprise and Regulatory Reform Act 2013 to remove public sector controls, to enable the GIB to raise capital without this affecting public sector debt:

As I said in my previous statement, a key objective in moving the company into the private sector is that it should be free to borrow and raise capital without this affecting public sector net debt. Giving GIB this freedom is essential if the company is to invest in accordance with its ambitious green business plan. It is now clear that to achieve re-classification of GIB as a private sector enterprise, we need to remove the public sector controls imposed on the company by the Enterprise and Regulatory Reform Act 2013. Unless we remove these controls, there is a real risk GIB would remain classified to the public sector even after a sale, so would remain subject to Government control over its capital raising.140

138 Green Investment Bank: Written statement - HCWS54, 25 June 2015 139 Business Green Green Investment Bank sale: The reaction 25 June 2015 140 HC Deb 15 October 2015 cc21-22WS

51 Enterprise Bill [HL] 2015-16

A Westminster Hall debate on the future of the Green Investment Bank was held on 29 October 2015. In introducing the debate Graham Stuart highlighted the cross party support which “reflects the widespread interest in and concern for the Green Investment Bank”.141 Mr Stuart referred to the concerns regarding the proposals to remove the statutory basis of the GIB, which would remove government control over the GIB, including the requirement for it to abide by its green purposes.142 In his response, the Minister said the Government would not commit to giving statutory and legislative guarantees that would constrain the operation of the bank or result in any debt counting towards public sector debt.143

The Bill The Government tabled an amendment to the Bill during its Committee stage in the Lords, which would have completely removed Part 1 of Enterprise and Regulatory Reform Act 2013, which sets out the statutory basis of the GIB. However, Peers expressed concern that, by removing the statutory requirement to abide by the GIB’s green purposes, those purposes risked being lost in the longer term as there would be no legal obligation on subsequent owners to abide by them. The Government withdrew the amendment.144

Report Stage Opposition Amendment

The Government introduced amendments at Report stage in the Lords, now clauses 30 and 31 of the Bill. These still remove the green purposes of the GIB; but they would also allow the Government to continue providing funding to the bank as a minority shareholder; and would require the Secretary of State to lay the GIB annual report and accounts before Parliament as long as it retains shares. They also set out transitional provisions for the Bank and a requirement for the Government to provide a report to Parliament before and after the sale.

141 HC Deb 29 Oct 2015 c197WH 142 Ibid c201WH 143 Ibid c233”H 144 HL Grand Committee 4 Nov 2015

Office of National Statistics Classification

The ONS is responsible for classifying bodies as private or public sector, which affects how their debt is viewed in public accounts. This is assessed by looking at whether government exercises significant control over its general corporate policy. In looking at this ONS, have a series of “indicators of government control”, which are listed in section 3.1.1 of UK national accounts and public sector finances sector and transaction classification: the classification process. This states that on government control via regulation “if the government restricts a unit from ceasing activities (that is, exiting markets) or from diversifying its activities, this may lead to classification in the public sector”.

Number , 26 January 2016 52

The Minister reiterated the intention to secure commitments from buyers to protect the GIB green purposes, although these would not be binding:

We will secure commitments from investors, including: to protect the green purposes in the GIB’s articles of association; to continue to invest in green; and to continue the GIB’s high standards of green reporting. We fully expect investors to sign up to those commitments quite willingly because they are a key part of what the GIB does.145

Lord Smith of Kelvins, Chair of GIB, spoke in support of the Government’s approach and said that it would deliver “maximum possible protection”.146 However, Lord Teverson, following discussions with the ONS and HM Treasury, proposed a new clause which would create a structure “used in the private sector to make sure an organisation’s objectives are kept in the long term”. The structure proposed is that of a single special share owned by a charitable company with three trustees, selected by the Committee on Climate Change before privatisation. The trustees would have to agree unanimously to any changes to the company objectives, with “no public input whatever”. According to Lord Teverson, although the ONS would not give a guarantee on whether this would prevent the bank (and therefore its debt) being classified to the public sector, it is a solution “tried and tested in the private sector”.147

The Minister was not confident that the proposals would have the intended effect and invited Peers to work with the Government to test the proposal further, while urging Lord Teverson to withdraw the amendment. However, due to the difficulties of bringing a further amendment forward in time for Third Reading the amendment was put to a vote and passed with 258 votes for and 212 against.148 It now forms clause 32 of the Bill.

Environmental Audit Committee Report The Environmental Audit Committee launched an enquiry into the future of the GIB in October 2015 and published its report on 19 December 2015. The Committee supported the proposed creation of a special share to protect the GIB’s green purposes, but expressed concerns over risks of privatisation:

two key risks to GIB cannot be avoided merely by protecting its green purposes: first, the risk that GIB will move its focus away from novel and complex projects which struggle to find funding in favour of easier and less complex projects, and second, the risk that a privatised GIB could invest in areas which may damage its reputation and undermine its role and leadership in the green economy.149

145 HC Deb 30 Nov 2015 c944 146 Ibid c945 147 Ibid c948 148 Ibid c953 149 Environmental Audit Committee, The Future of the Green Investment Bank, Second

Report of Session 2015–16, HC 536, 16 December 2015, p3

53 Enterprise Bill [HL] 2015-16

8.4 Pubs code (clauses 33-34) Clauses 33-34 result from amendments to the Bill during the Lords’ Report Stage on 30 November 2015. They concern regulations - the Pubs Code - which the Secretary of State must make under section 42 of the Small Business, Enterprise and Employment Act 2015 (SBEE). The Library’s Second Reading briefing on the Small Business, Enterprise and Employment Bill sets out the detailed background to the Pubs Code.150

A draft Pubs Code was the subject of a recently concluded consultation. The consultation ran in two parts. Part 1 ran from 29 October 2015 to 18 January 2016. Part 2 ran from 4 December 2015 to 18 January 2016.

Market rent only: conditions and triggers – clause 33

Clause 33 concerns the circumstances in which pub-owning businesses must offer tied pub tenants a ‘market rent only’ (MRO) option, i.e. the option to occupy the pub at market rent, free of tie. Currently, SBEE, section 43(6) provides that the Pubs Code (my emphasis)

must include provision requiring a pub-owning business to offer a tied pub tenant a market rent only option—

(a) in connection with the renewal of any of the pub arrangements;

(b) in connection with a rent assessment or assessment of money payable by the tenant in lieu of rent;

(c) in connection with a significant increase in the price at which any product or service which is subject to a product or service tie is supplied to the tied pub tenant where the increase was not reasonably foreseeable—

(i) when the tenancy or licence was granted, or

(ii) if there has been an assessment of a kind mentioned in paragraph (b), when the last assessment was concluded;

(d) after a trigger event has occurred.

Clause 33 seeks to address a particular issue in relation to the requirement to offer a MRO option wherever there is a rent assessment. Regulation 15(b) of the draft Pubs Code suggested that this requirement would be limited to situations where the rent assessment would involve a proposed increase to the rent. Their Lordships opposed this, arguing that the offer of an MRO option should be given whenever there is a rent assessment, irrespective of whether or not there is a proposed increase to the rent.151

In moving the amendment, Lord Mendelson summarised its intended effect:

we are keen to reinstate the previous purposes and ensure that we knock out the idea that the relevant measure has to be taken after a rent increase. This is reflected in our amendment. This is a

150 Small Business, Enterprise and Employment Bill, Commons Briefing Paper, RP14-39,

10 July 2014 151 HL Deb 30 November 2015 cc961-973

Number , 26 January 2016 54

fundamental and important principle, and one which makes a huge difference to tenants.152

The amendment was agreed to by 229 votes to 208.153

Whether or not the amendment would or could have this effect is the subject of some doubt: clause 33 broadly mirrors the wording of the existing relevant parts of SBEE, section 43 (see above). Thus, if the amendment was brought into law, there would be two pieces of primary legislation, containing almost identical text, providing the statutory footing of the Pubs Code. In the part 2 consultation on the Pubs Code, published after the Lords Report Stage, the Government noted:

While the legal effect of the current drafting is uncertain we understand that the intended effect of the amendment is to disallow the Government’s proposal in part one of the Pubs Code consultation to permit tied pub tenants to request an MRO option at a rent assessment only where the rent is increased.

The Government needs to ensure that the Pubs Code is clear to tied tenants and pub owning businesses on this important issue. It will do this by taking proper consideration of the will of Parliament as expressed in Lords Report and by seeking views and evidence of stakeholders regarding any unintended consequences that might result from the current drafting of the regulations. The Government is also taking the opportunity of this Part 2 of the consultation to ask for views on the removal from the draft Pubs Code of the condition that there must be a proposal for a rent increase at rent assessment before a tenant may exercise the MRO option; and for evidence of the extent to which the current drafting would restrict access to the MRO option at rent assessment.154

Report on pub company avoidance – clause 34

Clause 34 would create a duty for the Pubs Code Adjudicator to report to the Secretary of State if it finds evidence of pub-owning businesses avoiding the relevant of requirements of the SBEE and the Pubs Code. It was agreed to by the Government.155

152 Ibid., c964 153 Ibid., c973 154 BIS, Pubs Code and Pubs Code Adjudicator, A Government Consultation – Part 2,

December 2015, pp16-17 155 Op cit., c971

55 Enterprise Bill [HL] 2015-16

9. Public sector employment (Part 8)

Clause 35 would amend the public sector exit payments provisions of the Small Business, Enterprise and Employment Act 2015, enabling regulations to restrict exit payments to employees of prescribed public sector authorities, or holders of prescribed offices, to a value of £95,000; an amount which may be varied by regulations or waived in special cases.

9.1 Background The Conservative Party Manifesto 2015 pledged to “end taxpayer-funded six-figure payoffs for the best paid public sector workers”.156 On 23 May 2015 the Government announced its intention to cap redundancy payments to public sector workers.157 The Chancellor of the Exchequer, George Osborne, said:

It is not right that working people should have to fork out for golden parachutes worth hundreds of thousands of pounds for public sector workers when they are made redundant.

That’s why we are delivering on our pledge to end six figure pay offs for the best paid public sector workers, ensuring fairness and value for money for the taxpayer.158

The Government consulted on the proposal between 31 July 2015 and 27 August 2015. The consultation set out the Government’s case for introducing the cap:

… the government believes that it is right to ensure that public sector workers do not receive disproportionately large exit payments in the first instance. In particular the government is concerned about the number of public sector workers who are receiving exit payments of six figures. In 2013-14 alone, nearly 2,000 public sector employees received exit payments costing more than £100,000 and since 2011 six-figure exit payments have cost the public sector around £1.1 billion. The government does not believe that such pay outs, which are far in excess of those that most private or public sector workers would receive are fair or offer value for money to the taxpayer who funds them.159

The Government published its response in September 2015, which summarised the key elements of the proposal:

• Apply a £95,000 cap on the total value of exit payments made to employees in the public sector

• Apply the cap to all forms of exit payment, including cash lump sums, early access to an unreduced pension, payments in lieu of notice and non-financial and other benefits

156 Conservative Party Manifesto 2015, p49 157 Government ends six figure exit payouts, Gov.uk, 23 May 2015 158 Ibid. 159 HM Treasury, Consultation on a Public Sector Exit Payment Cap (last updated 3

November 2015)

Number , 26 January 2016 56

• Apply the cap to all types of arrangements for determining exit payments

• Establish a waiver process for exceptional circumstances

• Apply the policy to all public sector bodies, with a small number of bodies granted an exemption from the policy160

The response document set out that the cap would apply to employees and officers holders who work for

entities classified within central and local government and non-financial public corporation sectors as determined by the Office for National Statistics for National Account purposes, with a small number of exemptions.161

The Government intends to exempt payments made by the following bodies:

• The following public financial corporations and subsidiaries:

─ The Royal Bank of Scotland

─ UK Asset Resolution

─ Northern Rock

─ Bradford and Bingley

─ Pension Protection Fund

─ The London Authorities Mutual Limited

─ National Employment Savings Trust Corporation (NEST)

─ Financial Conduct Authority

─ Financial Ombudsman Service Ltd.

─ First Rate Exchange Services Holdings Limited

─ First Rate Exchange Services Limited

─ Guaranteed Export Finance Corporation PLC (GEFCo)

─ Northern Ireland Central Investment Fund for Charities

• Prudential Regulation Authority

• Armed Forces

• National Museums

• The Commissioners for Irish Lights

• Public broadcasters: BBC, Ch4 and S4C

• Bank of England162

The Government states that its

… strong expectation is that bodies that are proposed to be outside of the scope of the cap on exit payments will come forward with their own, commensurate cap on exit payments.163

160 HM Treasury, Public Sector Exit Payments: response to the consultation, September

2015, p3 161 Ibid., p5 162 Ibid. 163 Ibid.

57 Enterprise Bill [HL] 2015-16

The responses to the consultation were summarised by the Government as follows:

Over 4,000 responses to the consultation were received. While a significant number were not in favour of a cap given other reforms to public sector terms and conditions, or had objections to the cap applying to the organisation they worked for, few representations set out a different proposition to address six-figure payouts in the public sector. A number of responses supported limiting the amount that individuals could receive on exit to under £100,000, and applying a cap across the public sector.164

Small Business, Enterprise and Employment Act 2015 The provisions in the Bill would amend the 2015 Act, to add to regulation making powers introduced by that Act. Sections 154-157 of the Act introduced powers to “claw back” exit payments from public sector employees should the employees return to work in the public sector. Draft regulations to implement this were published for consultation on 20 December 2015. The consultation is due to close on 25 January 2015, with a view to the policy being implemented from April 2016.165 Under the regulations, if a public sector employee who earned in excess of £80,000 receives an exit payment, then returns to work in the public sector within 12 months, that employee would be subject to the recovery provisions.

For further information about the recovery provisions introduced by the 2015 Act, see the Library’s briefing on the Small Business, Enterprise and Employment Bill.166

9.2 The Bill Clause 35(1) would amend the Small Business, Enterprise and Employment Act 2015, inserting after section 153 new sections 153A-C. Clause 35(2) would give effect to Schedule 4, which contain detailed consequential provisions.

New section 153A would create the power to make regulations to implement the cap, securing

that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed £95,000.167

This amount may by regulations be substituted for a different amount.168

164 Ibid., p3 165 Public sector exit payment recovery regulations, Gov..uk (accessed 5 January 2015) 166 Small Business, Enterprise and Employment Bill, RP14-39, 10 July 2014 167 New section 153A(1) 168 New section 153A(9)

Number , 26 January 2016 58

If multiple payments are made to an individual during a period of 28 days (i.e. the individual exits from more than one public sector role), the cap would apply to the aggregate amount.169

The cap may only apply to employees of prescribed public sector authorities, or office holders of prescribed public sector offices.170 Draft regulations have been published which indicate that the cap will apply to all public bodies within the public sector as set out by the list prepared by the Office for National Statistics.171

The description of payments which may be prescribed for these purposes are limited to

• any payment on account of dismissal by reason of redundancy (read in accordance with section 139 of the Employment Rights Act 1996);

• any payment on voluntary exit; • any payment to reduce or eliminate an actuarial reduction to a • pension on early retirement or in respect of the cost to a pension

scheme of such a reduction not being made; • any severance payment or other ex gratia payment; • any payment in respect of an outstanding entitlement; • any payment of compensation under the terms of a contract; • any payment in lieu of notice; • any payment in the form of shares or share options.172

Nothing in the regulations could permit the cap to be imposed in relation to payments made by authorities who wholly or mainly exercise functions within the devolved competence of the Northern Ireland Assembly.

New section 153B would provide that the power to make regulations is exercisable by Scottish Ministers in relation to payments made by relevant Scottish authorities. The power is exercisable by the Treasury in relation to all other payments.

Regulations made under these provisions would be subject to the affirmative resolution procedure (or, if made by Scottish Ministers, the affirmative procedure).173

New section 153C would introduce a power for regulations to relax the cap in respect of particular public sector employees or classes of employees. The regulations may provide that the cap may be relaxed only with Treasury approval, or after complying with directions given by the Treasury.174

169 New section 153A(2) 170 New section 153A(3) 171 See explanation of ONS classification in the above discussion of the Green

Investment Bank 172 New section 153A(5) 173 New section 153B(4) 174 New section 153C(4)

59 Enterprise Bill [HL] 2015-16

9.3 Debate in the Lords The proposal to cap public sector exit payments attracted considerable debate in the Lords. Issues highlighted by their Lordships included: the effect on less well paid workers (see below); the failure to include a detailed impact assessment alongside the Bill; the absence of an uprating mechanism for the cap amount; the effect on whistleblowing and discrimination claim settlements; and the original proposal to set out the cap in regulations subject to the affirmative resolution procedure for the first main set of secondary regulations, rather than the affirmative resolution procedure for both the first and any subsequent changes to regulations. That last proposal was criticised by the Delegated Powers and Regulatory Reform Committee, who recommended that “the affirmative procedure should always apply to regulations made under new section 153A(1) to (3) of the 2015 Act”.175 The Government moved amendments to the Bill to make all regulations made under the clause subject to the affirmative resolution procedure, which were agreed to without division.176

The most heavily criticised aspect of the proposal was its potential effect on lower paid workers. The gist of their Lordships criticisms were set out by Baroness Hayter of Kentish Town during debate in Grand Committee:

It is not that we are particularly against what the Government said that they wanted to do in curtailing the very large exit payments made to a tiny handful of public servants who then re-enter the service of the state, albeit in a different guise. Indeed, as I am sure the Minister does not need reminding, the original words in the Conservative Party’s manifesto—on page 49, I think, if she has a copy here—were:

“We will end taxpayer-funded six-figure payoffs for the best paid public sector workers.”

Best paid? No, the cap will affect those with long service rather than those on the highest pay—hence our probing amendment to discover what exactly the Government are out to achieve. This is not aimed at the “best paid” of our public servants. The Cabinet Office confirmed that some earning less than £25,000 a year could be affected because of their long service—that is, serving the public, often for salaries below those in the private sector.

We assume that this was not the Government’s initial intention, especially given that they said in their memo to the Delegated Powers and Regulatory Reform Committee that the regulations would only prevent “vast benefits” being paid to “a few individuals”. That is not what we have, so why has it changed? Has the Government’s intention changed or is this just poorly thought-out legislation, which ends up hurting long-standing rather than highly paid staff?

Will the noble Baroness give the explanation that I think is due to us and, indeed, to all public servants? Does she consider that £25,000 equates with “best paid”? Has the intention changed, so that the Government want long-serving workers to be caught? Is

175 Delegated Powers and Regulatory Reform Committee, Enterprise Bill [HL] European

Union Referendum Bill, 9th Report of Session 2015‒16, HL Paper 42, p5, para 16 176 HL Deb 30 November 2015 cc995-996

Number , 26 January 2016 60

this just a rather nasty, crafty little device that they have alighted on simply to help to reduce the deficit, given that the Chancellor seems to be having difficulty with it, by hanging that deficit around the neck of their own employees? Or is this just mistaken drafting, which the Minister will be happy to amend on Report?

As I suggested, the impact assessment suggested that the cap could save “low hundreds of millions” over given years, as if anticipating relatively small numbers being caught. However, no formal impact assessment was undertaken,

“as there are no obligations or costs imposed on business”.

Of course, an impact assessment is always possible and the impact on the people concerned, or indeed on the efficiency of government, should have been a central concern, although it was clearly not to Ministers.177

The Minster set out the Government’s position:

I shall address the point that the noble Baroness, Lady Hayter, made about whether the cap had been extended deliberately. First, £95,000 is a large exit payment, whatever the level of an individual’s former salary. The Government do not believe that the taxpayer should continue to fund exit payments larger than that. The clause allows for the cap to be relaxed, including to take account of exceptional individual circumstances. The large majority of workers are not affected by these arrangements; for example, less than 2% of recent exits in local government would have exceeded the cap. But where generous early retirement provisions are offered that include immediate payment of unreduced pensions, some lower-paid staff with very long service can currently be eligible for exit packages above the level of the cap.

The Government recognise the importance of exit payments in providing workers with support as they get back into employment or enter retirement. However, the fundamental point is that the Government do not believe that it is fair for taxpayers to continue funding the small minority of exit packages that cost over £95,000. The Government made a clear commitment in their manifesto—the source of the figure—to end six-figure exit payouts for public workers.178

And at Lords Report:

The Government have taken a range of difficult decisions on public sector pay. Measures to restrain pay growth in the public sector have not been easy or popular, but they have worked. The OBR estimates that the resulting savings will protect the equivalent of 200,000 public sector jobs in this Parliament. The cap is a smaller measure, but it is being taken in the same spirit and for the same reasons. It will not have any impact on the large majority of public sector workers. It is focused on the highest payouts and will affect only the top 5% in value of all exit payments made in the public sector. In those limited cases where the cap will bite on middle-earners with long service, I hope to show why this measure is a fair and proportionate course of action. It will still allow such public sector workers to receive payments of up to £95,000 and retire with guaranteed and index-linked defined benefit pensions, which are likely to be far more

177 HL Deb 4 November 2015 GC359-360 178 Ibid., GC365

61 Enterprise Bill [HL] 2015-16

generous than those received by counterparts in similar roles in the private sector.

In Committee, the noble Baroness gave several examples of public servants who might be caught by the cap. We have looked at these examples using assumptions, including of likely earnings. Of course, I accept that in the world of pensions different assumptions can always be made but, using our assumptions, we have found the following.

In the example of a librarian on £25,000 with 34 years’ service, we have found that an additional £95,000 pension top-up from the employer would in fact be enough to allow that person to retire on an unreduced pension at the age of 52. The same is true of the noble Baroness’s examples of a prison warder, whom we have assumed earns £28,000, retiring at 52 with 25 years’ service, and a school inspector, whom we have assumed earns £70,000, leaving at 56 with 16 years’ experience. In those cases, only if an additional redundancy lump sum were received on top of the pension strain payment could the cap be breached at all. In the cases of the prison warder and the school inspector, the additional cash redundancy payment would have to be more than £37,000 and £50,000 respectively before the cap could be breached.

For the other examples the noble Baroness quoted in Committee, the cap would indeed limit the value of the pension top-up to £95,000, but I would like to demonstrate that the effects of this should not be disproportionate. On our assumptions, a 50 year-old health and safety inspector with 20 years’ service on £50,000 a year would receive a pension of £12,000 a year, rather than the £12,500 they would have got before the cap. A 52 year-old tax inspector with 25 years’ service earning £60,000 a year would have a pension of £17,500 a year instead of £19,000.

Of course, pension top-ups do not just go to public sector workers on moderate salaries. Very senior staff on very high salaries can receive huge benefits in this way, and some of these payments have led to a great deal of public concern.179

9.4 Comment Such publicly available comment as there is on the proposal tends to focus on the potential impact of it on middle-ranking public sector workers. For example, the Local Government Association said:

The consensus among the respondents to our consultation exercise felt that the policy as drafted with a cap set at £95,000, which includes strain on fund costs, unjustifiably penalises older, longer serving, junior to middle ranking employees in local authorities. Most respondents felt that it was not the intention of the government to target such employees in this way and that this policy as it stands misses the mark of what many felt was believed to be the target of high earners.180

179 HL Deb 30 November 2015 cc981-982 180 Local Government Association, Cap on public sector exit payments local government

association response, August 2015, p6

BRIEFING PAPER Number , 26 January 2016

About the Library The House of Commons Library research service provides MPs and their staff with the impartial briefing and evidence base they need to do their work in scrutinising Government, proposing legislation, and supporting constituents.

As well as providing MPs with a confidential service we publish open briefing papers, which are available on the Parliament website.

Every effort is made to ensure that the information contained in these publically available research briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes.

If you have any comments on our briefings please email papers@parliament.uk. Authors are available to discuss the content of this briefing only with Members and their staff.

If you have any general questions about the work of the House of Commons you can email hcinfo@parliament.uk.

Disclaimer This information is provided to Members of Parliament in support of their parliamentary duties. It is a general briefing only and should not be relied on as a substitute for specific advice. The House of Commons or the author(s) shall not be liable for any errors or omissions, or for any loss or damage of any kind arising from its use, and may remove, vary or amend any information at any time without prior notice.

The House of Commons accepts no responsibility for any references or links to, or the content of, information maintained by third parties. This information is provided subject to the conditions of the Open Parliament Licence.